UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM ~~10-Q~~10-Q/A

(Amendment No. 1)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Quarter Ended ~~February 27,~~August 28, 2022, or


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition period for _________ to _________.

Commission file number: 000-27446

~~LANDEC CORPORATION~~LIFECORE BIOMEDICAL, INC.

(Exact name of registrant as specified in its charter)


Delaware			94-3025618
(State or other jurisdiction of incorporation or organization)			(IRS Employer Identification Number)


~~2811 Airpark Drive~~3515 Lyman Boulevard
~~Santa Maria,~~Chaska	~~California~~Minnesota	~~93455~~55318
(Address of principal executive offices)		(Zip Code)

~~(650) 306-1650~~(952) 368-4300

(Registrant's telephone number, including area code)

LANDEC CORPORATION

2811 Airpark Drive

Santa Maria, California 93455

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common stock, par value $0.001 per share	~~LNDC~~LFCR	The NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒☐ No ☐☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒☐ No ☐☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☐

Accelerated Filer

☒

Emerging Growth Company

☐

Non Accelerated Filer

☐

Smaller Reporting Company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~April 4, 2022,~~March 15, 2023, there were ~~29,482,538~~30,319,208 shares of common stock outstanding.

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EXPLANATORY NOTE

~~LANDEC CORPORATION~~

This Amendment No. 1 on Form 10-Q/A (the “Amendment”) is being filed by Lifecore Biomedical, Inc. (f/k/a Landec Corporation) (the “Company”) to amend and restate its Quarterly Report on Form 10-Q for the quarter ended August 28, 2022 originally filed with the Securities and Exchange Commission (the “SEC”) on October 7, 2022 (the “Original 10-Q”, and, as amended by this Amendment, the “Quarterly Report”) to reflect the restatement of the Company’s unaudited consolidated financial statements as of and for the three months ended August 28, 2022 contained in the Original 10-Q (the “Restatement”).

In addition, the Company is including in this Amendment currently dated certifications from its Chief Executive Officer and Chief Financial Officer as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, attached hereto as Exhibits 31.1 and 31.2 and Exhibits 32.1 and 32.2, respectively. The exhibits listed in Part IV-Item 15 “Exhibits and Financial Statement Schedules” are filed herewith in accordance with Rule 12b-15 of the Exchange Act.

This Amendment also includes the Company’s determination that, as of the date of the filing of this Amendment, the date the accompanying consolidated financial statements are being re-issued (the “Amended Filing Date”), the existence of certain conditions and events raise substantial doubt about the Company’s ability to continue as a going concern within one year following the Amended Filing Date.

On November 14, 2022, the Company changed its name from “Landec Corporation” to “Lifecore Biomedical, Inc.” (the “Name Change”) Currently therewith, the Company also changed the name of its wholly owned subsidiary from “Lifecore Biomedical, Inc.” to “Lifecore Biomedical Operating Company, Inc.” Unless context otherwise requires, all references to “Landec Corporation” or “Landec” contained in the Quarterly Report refer to the Company, and all references to “Lifecore Biomedical, Inc.,” “Lifecore Biomedical,” or “Lifecore” refer to Lifecore Biomedical Operating Company, Inc. In connection with the Name Change, the Company’s common stock began trading under its new Nasdaq ticker symbol “LFCR” on November 15, 2022.

Background of Restatement

On January 31, 2023, the Audit Committee (the “Audit Committee”) of the Board of Directors of the Company, after discussion with management, concluded that the Company’s previously issued (i) audited consolidated financial statements as of and for the year ended May 29, 2022 and (ii) unaudited consolidated financial statements as of and for the three months ended August 28, 2022 (collectively, the “Prior Financial Statements”) should no longer be relied upon and that the Company needed to restate the Prior Financial Statements. This determination resulted from the identification of errors in the Prior Financial Statements related to certain non-cash impairment charges related to the Company’s Curation Foods business contained in the Prior Financial Statements.

Restatement Overview

For a more detailed description of the financial impact of the Restatement, see Note 1 - Correction of Error in Previously Reported Interim Financial Statements (Unaudited), to the consolidated financial statements contained in this Quarterly Report on Form 10-Q/A.

Internal Controls Considerations

In connection with the Restatement described above, management has determined that there was a material weakness in the Company's design and operation of controls related to the assessment of recoverability and measurement of fair value of certain indefinite-lived and long-lived assets, as of May 29, 2022. This is in addition to the existing material weakness in the design and operation of controls related to the accounting for and classification of certain non-standard transactions, which included discontinued operations and restructuring costs, as of May 29, 2022. Due to the material weakness in internal control over financial reporting that was disclosed in our Annual Report on Form 10-K/A for the fiscal year ended May 29, 2022, our disclosure controls and procedures were not effective as of August 28, 2022. For a discussion of management’s considerations of the Company’s disclosures controls and procedures, internal controls over financial reporting, and material weakness identified, refer to “Controls and Procedures” in Part I, Item 4 of this Quarterly Report on Form 10-Q/A.

Pursuant to Rule 12b-15 promulgated under the Securities Act of 1934, as amended (the “Exchange Act”), this Amendment also contains new certifications by our principal executive officer and principal financial officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002.

Going Concern

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In addition, in connection with the preparation of this Form 10-Q/A, the Company has evaluated its financial condition as of the Amended Filing Date. Based on this evaluation, the Company has determined that, as of the Amended Filing Date, the existence of certain conditions and events raise substantial doubt about the Company’s ability to continue as a going concern within one year following the Amended Filing Date. The assessment of going concern is further discussed under “Note 1 – Organization, Basis of Presentation, and Summary of Significant Accounting Policies, in Part I, Item 1.”, “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Going Concern” and “─ Liquidity and Capital Resources”, and “Part II, Item 1A. Risk Factors.”

Summary of Changes in this Quarterly Report on Form 10-Q/A

In connection with the restatement of the foregoing, the Company, in this Amendment:

1.restated the unaudited consolidated financial statements as of and for the three months ended August 28, 2022, in Note 1 Organization, Basis of Presentation, and Summary of Significant Accounting Policies, in Part I, Item 1 of this Quarterly Report on Form 10-Q/A;

2.updated its cautionary note about forward-looking statements in connection with statements regarding the Company’s ability to continue as a going concern;

3.added “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Going Concern” and updated “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” to reflect its determination as to its ability to continue as a going concern; and

4.updated its disclosures regarding its controls and procedures in Part I, Item 4. of this Quarterly Report on Form 10-Q/A.

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LIFECORE BIOMEDICAL, INC.

FORM ~~10-Q~~10-Q/A

For the Fiscal Quarter Ended ~~February 27,~~August 28, 2022

INDEX


			Page




Part I.	Financial Information

Item 1.	Financial Statements

	a)	Consolidated Balance Sheets as of ~~February 27,~~August 28, 2022 and May ~~30, 2021~~29, 2022	1

	b)	Consolidated Statements of Comprehensive (Loss) Income for the Three ~~and~~ ~~Nine~~Months Ended ~~February 27,~~August 28, 2022 and ~~February 28,~~ ~~202~~1August 29, 2021	2

	c)	Consolidated Statement of Changes in Stockholders' Equity for the Three ~~and~~ ~~Nine~~Months Ended ~~February 27,~~August 28, 2022 and ~~February 28,~~ ~~202~~1August 29, 2021	3

	d)	Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~February~~ 2 7 ~~, 202~~2 August 28, 2022 and ~~February~~ 2 8 ~~, 202~~1August 29, 2021	54

	e)	Notes to Consolidated Financial Statements	65

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		2627

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		3436

Item 4.	Controls and Procedures		3436

Part II.	Other Information		3538

Item 1.	Legal Proceedings		3538

Item 1A.	Risk Factors		3538

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		3538

Item 3.	Defaults Upon Senior Securities		3538

Item 4.	Mine Safety Disclosures		3538

Item 5.	Other Information		3538

Item 6.	Exhibits		3639

	Signatures		3740

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~~LANDEC CORPORATION~~LIFECORE BIOMEDICAL, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)


							As restated
		February 27, 2022		May 30, 2021			August 28, 2022		May 29, 2022
		(unaudited)					(unaudited)
ASSETS	ASSETS					ASSETS
Current Assets:	Current Assets:					Current Assets:
Cash and cash equivalents	Cash and cash equivalents	$	1,854	$	1,159	Cash and cash equivalents	$	4,222	$	1,643
Accounts receivable, less allowance for credit losses	Accounts receivable, less allowance for credit losses	49,559		41,430		Accounts receivable, less allowance for credit losses	40,934		48,172
Inventories	Inventories	73,700		63,076		Inventories	64,285		66,845
Prepaid expenses and other current assets	Prepaid expenses and other current assets	6,924		5,038		Prepaid expenses and other current assets	7,157		7,052
Current assets, discontinued operations		—		37,618

Total Current Assets	Total Current Assets	132,037		148,321		Total Current Assets	116,598		123,712

Property and equipment, net	Property and equipment, net	123,209		112,770		Property and equipment, net	117,551		118,531
Operating lease right-of-use assets	Operating lease right-of-use assets	8,796		7,480		Operating lease right-of-use assets	8,229		8,580
Goodwill	Goodwill	33,916		33,916		Goodwill	13,881		13,881
Trademarks/tradenames, net	Trademarks/tradenames, net	17,100		17,100		Trademarks/tradenames, net	8,700		8,700
Customer relationships, net	Customer relationships, net	7,476		8,532		Customer relationships, net	1,346		1,400
Other assets	Other assets	3,048		3,531		Other assets	2,793		3,002
Other assets, discontinued operations		—		171,274

Total Assets	Total Assets	$	325,582	$	502,924	Total Assets	$	269,098	$	277,806

LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:	Current Liabilities:					Current Liabilities:
Accounts payable	Accounts payable	$	20,014	$	16,298	Accounts payable	$	16,366	$	15,802
Accrued compensation	Accrued compensation	9,757		7,754		Accrued compensation	6,373		9,238
Other accrued liabilities	Other accrued liabilities	13,735		3,955		Other accrued liabilities	7,832		7,647
Current portion of lease liabilities	Current portion of lease liabilities	5,045		1,465		Current portion of lease liabilities	5,021		5,026
Deferred revenue	Deferred revenue	1,614		637		Deferred revenue	803		919
Line of credit	Line of credit	39,900		29,000		Line of credit	44,000		40,000
Current portion of long-term debt, net						Current portion of long-term debt, net	98,569		98,178

Current liabilities, discontinued operations		—		42,779
Total Current Liabilities	Total Current Liabilities	90,065		101,888		Total Current Liabilities	178,964		176,810

Long-term debt, net	Long-term debt, net	79,598		164,902		Long-term debt, net	—		—
Long-term lease liabilities	Long-term lease liabilities	10,342		9,581		Long-term lease liabilities	9,447		9,983
Deferred taxes, net		961		6,140
Deferred tax liability, net						Deferred tax liability, net	124		126
Other non-current liabilities	Other non-current liabilities	544		2,870		Other non-current liabilities	199		190
Non-current liabilities, discontinued operations		—		14,759

Total Liabilities	Total Liabilities	181,510		300,140		Total Liabilities	188,734		187,109

Stockholders’ Equity:	Stockholders’ Equity:					Stockholders’ Equity:
Common stock, $0.001 par value; 50,000 shares authorized; 29,482 and 29,333 shares issued and outstanding at February 27, 2022 and May 30, 2021, respectively		29		29
Common stock, $0.001 par value; 50,000 shares authorized; 29,593 and 29,513 shares issued and outstanding at August 28, 2022 and May 29, 2022, respectively						Common stock, $0.001 par value; 50,000 shares authorized; 29,593 and 29,513 shares issued and outstanding at August 28, 2022 and May 29, 2022, respectively	30		30
Additional paid-in capital	Additional paid-in capital	166,943		165,533		Additional paid-in capital	168,070		167,352
Retained earnings (accumulated deficit)	Retained earnings (accumulated deficit)	(22,188)		38,580		Retained earnings (accumulated deficit)	(87,450)		(76,099)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(712)		(1,358)		Accumulated other comprehensive loss	(286)		(586)
Total Stockholders’ Equity	Total Stockholders’ Equity	144,072		202,784		Total Stockholders’ Equity	80,364		90,697
Total Liabilities and Stockholders’ Equity	Total Liabilities and Stockholders’ Equity	$	325,582	$	502,924	Total Liabilities and Stockholders’ Equity	$	269,098	$	277,806

See accompanying notes to the consolidated financial statements.

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~~LANDEC CORPORATION~~LIFECORE BIOMEDICAL, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Unaudited)

(In thousands, except per share amounts)


											Three Months Ended
		Three Months Ended				Nine Months Ended					As restated
		February 27, 2022		February 28, 2021		February 27, 2022		February 28, 2021			August 28, 2022		August 29, 2021
Product sales	Product sales	$	53,074	$	44,690	$	138,158	$	126,629	Product sales	$	43,355	$	41,632
Cost of product sales	Cost of product sales	39,179		30,249		99,113		90,739		Cost of product sales	37,103		31,197
Gross profit	Gross profit	13,895		14,441		39,045		35,890		Gross profit	6,252		10,435
Operating costs and expenses:	Operating costs and expenses:									Operating costs and expenses:
Research and development	Research and development	2,056		1,843		5,785		5,523		Research and development	2,048		1,873
Selling, general and administrative	Selling, general and administrative	9,725		8,134		27,207		27,968		Selling, general and administrative	10,661		9,470

Legal settlement charge		—		—		—		1,763

Restructuring costs	Restructuring costs	5,865		2,023		8,406		2,826		Restructuring costs	1,047		1,834
Total operating costs and expenses	Total operating costs and expenses	17,646		12,000		41,398		38,080		Total operating costs and expenses	13,756		13,177
Operating loss	Operating loss	(3,751)		2,441		(2,353)		(2,190)		Operating loss	(7,504)		(2,742)

Interest income	Interest income	20		13		66		31		Interest income	15		27
Interest expense	Interest expense	(4,105)		(2,939)		(13,877)		(6,609)		Interest expense	(3,678)		(6,678)
Loss on debt refinancing		—		(1,110)		—		(1,110)

Other income (expense), net	Other income (expense), net	454		72		642		64		Other income (expense), net	(180)		109
Net loss before tax	Net loss before tax	(7,382)		(1,523)		(15,522)		(9,814)		Net loss before tax	(11,347)		(9,284)
Income tax benefit		276		58		5,012		1,025
Income tax (expense) benefit										Income tax (expense) benefit	(4)		1,651
Net loss from continuing operations	Net loss from continuing operations	(7,106)		(1,465)		(10,510)		(8,789)		Net loss from continuing operations	(11,351)		(7,633)

Loss from discontinued operations, net of tax	Loss from discontinued operations, net of tax	(5,744)		(4,033)		(50,258)		(21,010)		Loss from discontinued operations, net of tax	—		(1,844)
Net loss	Net loss	$	(12,850)	$	(5,498)	$	(60,768)	$	(29,799)	Net loss	$	(11,351)	$	(9,477)

Net loss per common share:
Basic		$	(0.24)	$	(0.05)	$	(0.36)	$	(0.30)
Basic net loss per share:										Basic net loss per share:
Loss from continuing operations										Loss from continuing operations	$	(0.38)	$	(0.26)
Loss from discontinued operations	Loss from discontinued operations	(0.19)		(0.14)		(1.71)		(0.72)		Loss from discontinued operations	—		(0.06)
Diluted		$	(0.43)	$	(0.19)	$	(2.07)	$	(1.02)
Total basic net loss per share										Total basic net loss per share	$	(0.38)	$	(0.32)

Diluted net loss per share:	Diluted net loss per share:									Diluted net loss per share:
Loss from continuing operations	Loss from continuing operations	$	(0.24)	$	(0.05)	$	(0.36)	$	(0.30)	Loss from continuing operations	$	(0.38)	$	(0.26)
Loss from discontinued operations	Loss from discontinued operations	(0.19)		(0.14)		(1.71)		(0.72)		Loss from discontinued operations	—		(0.06)
Total diluted net loss per share	Total diluted net loss per share	$	(0.43)	$	(0.19)	$	(2.07)	$	(1.02)	Total diluted net loss per share	$	(0.38)	$	(0.32)

Shares used in per share computation:	Shares used in per share computation:									Shares used in per share computation:
Basic	Basic	29,482		29,323		29,459		29,282		Basic	29,577		29,424
Diluted	Diluted	29,482		29,323		29,459		29,282		Diluted	29,577		29,424

Other comprehensive income (loss), net of tax:	Other comprehensive income (loss), net of tax:									Other comprehensive income (loss), net of tax:
Net unrealized gain (losses) on interest rate swaps (net of tax effect of $(101), $(99), $(291), and $(327))		$	104	$	387	$	646	$	1,092
Net unrealized gain (losses) on interest rate swaps (net of tax effect of $(16) and $(90))										Net unrealized gain (losses) on interest rate swaps (net of tax effect of $(16) and $(90))	$	300	$	366
Other comprehensive income (loss), net of tax	Other comprehensive income (loss), net of tax	104		387		646		1,092		Other comprehensive income (loss), net of tax	300		366
Total comprehensive loss	Total comprehensive loss	$	(12,746)	$	(5,111)	$	(60,122)	$	(28,707)	Total comprehensive loss	$	(11,051)	$	(9,111)

See accompanying notes to the consolidated financial statements.

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~~LANDEC CORPORATION~~LIFECORE BIOMEDICAL, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

~~(In thousands, except per share amounts)~~ (In thousands)


Three and Nine Months Ended February 27, 2022
Three Months Ended August 28, 2022																		Three Months Ended August 28, 2022
					Additional Paid-in Capital				Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive Loss				Total Stockholders’ Equity																	As restated					As restated
		Common Stock																	Additional Paid-in Capital				Retained Earnings (Accumulated Deficit)					Accumulated Other Comprehensive Loss					Total Stockholders’ Equity
		Shares	Amount								Common Stock
Balance at May 30, 2021		29,333	$	29			$	165,533						$	38,580						$	(1,358)								$	202,784
																					Shares							Amount					Additional Paid-in Capital			Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
Balance at May 29, 2022																		Balance at May 29, 2022		29,513				$	30
Issuance of stock under stock plans, net of shares withheld	Issuance of stock under stock plans, net of shares withheld	129	—				—							—					—				—			Issuance of stock under stock plans, net of shares withheld	80					—
Taxes paid by Company for employee stock plans	Taxes paid by Company for employee stock plans	—	—		(428)				—			—				(428)		Taxes paid by Company for employee stock plans	—				—					(67)							—					—		(67)
Stock-based compensation	Stock-based compensation	—	—		620				—			—				620		Stock-based compensation	—				—					785						—			—		785
Net loss	Net loss	—	—		—				(9,477)			—				(9,477)		Net loss	—				—					—					(11,351)			—		(11,351)
Other comprehensive income, net of tax	Other comprehensive income, net of tax	—	—		—				—			366				366		Other comprehensive income, net of tax	—				—					—					—			300		300
Balance at August 29, 2021		29,462	$	29	$	165,725			$	29,103		$	(992)			$	193,865
Issuance of stock under stock plans, net of shares withheld		19	—		—				—			—				—
Taxes paid by Company for employee stock plans		—	—		(84)				—			—				(84)
Stock-based compensation		—	—		686				—			—				686
Net loss		—	—		—				(38,441)			—				(38,441)
Other comprehensive income, net of tax		—	—		—				—			176				176
Balance at November 28, 2021		29,481	$	29	$	166,327			$	(9,338)		$	(816)			$	156,202
Issuance of stock under stock plans, net of shares withheld		1	—		—				—			—				—
Taxes paid by Company for employee stock plans		—	—		(6)				—			—				(6)
Stock-based compensation		—	—		622				—			—				622
Net loss		—	—		—				(12,850)			—				(12,850)
Other comprehensive income, net of tax		—	—		—				—			104				104
Balance at February 27, 2022		29,482	$	29	$	166,943			$	(22,188)		$	(712)			$	144,072
Balance at August 28, 2022																		Balance at August 28, 2022	29,593				$	30				$	168,070				$	(87,450)		$	(286)	$	80,364


Three Months Ended August 29, 2021
				Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
	Common Stock
	Shares	Amount
Balance at May 31, 2020	29,333	$	29	$	165,533	$	38,580	$	(1,358)	$	202,784
Issuance of stock under stock plans, net of shares withheld	129	—		—		—		—		—
Taxes paid by Company for employee stock plans	—	—		(428)		—		—		(428)
Stock-based compensation	—	—		620		—		—		620
Net loss	—	—		—		(9,477)		—		(9,477)
Other comprehensive income, net of tax	—	—		—		—		366		366
Balance at August 29, 2021	29,462	$	29	$	165,725	$	29,103	$	(992)	$	193,865

See accompanying notes to the consolidated financial statements.

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Three and Nine Months Ended February 28, 2021
Additional
Paid-in
Capital
Retained
Earnings (Accumulated Deficit)
Accumulated
Other
Comprehensive Loss
Total
Stockholders’
Equity
Common Stock
Shares Amount
Balance at May 31, 2020 29,224 $ 29 $ 162,578 $ 71,245 $ (2,808) $ 231,044
Issuance of stock under stock plans, net of shares withheld 18 — — — — —
Taxes paid by Company for employee stock plans — — (82) — — (82)
Stock-based compensation — — 892 — — 892
Net loss — — — (11,000) — (11,000)
Other comprehensive income, net of tax — — — — 304 304
Balance at August 30, 2020 29,242 $ 29 $ 163,388 $ 60,245 $ (2,504) $ 221,158
Issuance of stock under stock plans, net of shares withheld 81 — — — — —
Taxes paid by Company for employee stock plans — — (215) — — (215)
Stock-based compensation — — 895 — — 895
Net loss — — — (13,301) — (13,301)
Other comprehensive income, net of tax — — — — 401 401
Balance at November 29, 2020 29,323 $ 29 $ 164,068 $ 46,944 $ (2,103) $ 208,938
Issuance of stock under stock plans, net of shares withheld — — — — — —
Taxes paid by Company for employee stock plans — — — — — —
Stock-based compensation — — 797 — — 797
Net loss — — — (5,498) — (5,498)
Other comprehensive income, net of tax — — — — 387 387
Balance at February 28, 2021 29,323 $ 29 $ 164,865 $ 41,446 $ (1,716) $ 204,624
LIFECORE BIOMEDICAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	Three Months Ended
	As restated
	August 28, 2022		August 29, 2021
Cash flows from operating activities:
Net loss	$	(11,351)	$	(9,477)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

Depreciation, amortization of intangibles, debt costs and right-of-use assets	4,356		5,054
Gain on sale of BreatheWay	(2,108)		—
Stock-based compensation expense	785		620
Deferred taxes	(17)		(2,138)
Gain on disposal of property and equipment related to restructuring, net	—		(92)
Provision for expected credit losses	—		60
Net loss on disposal of property and equipment held and used	—		16



Other, net	(18)		(70)
Changes in current assets and current liabilities:
Accounts receivable, net	7,238		7,997
Inventory	2,560		248
Prepaid expenses and other current assets	(761)		(2,697)
Accounts payable	581		1,517
Accrued compensation	(2,865)		(3,131)
Other accrued liabilities	183		2,838
Deferred revenue	(116)		86
Net cash (used in) provided by operating activities	(1,533)		831

Cash flows from investing activities:
Proceeds from sale of BreatheWay, net	3,135		—

Purchases of property and equipment	(2,929)		(7,913)
Sale of Investment in non-public company	—		45,100

Proceeds from sales of property and equipment	—		1,082
Net cash provided by investing activities	206		38,269

Cash flows from financing activities:


Payments on long-term debt	(27)		(41,388)
Proceeds from lines of credit	4,000		8,000
Payments on lines of credit	—		(5,000)
Taxes paid by Company for employee stock plans	(67)		(428)
Payments for debt issuance costs	—		(132)

Net cash provided by (used in) financing activities	3,906		(38,948)
Net increase in cash and cash equivalents	2,579		152
Cash and cash equivalents, beginning of period	1,643		1,295
Cash and cash equivalents, end of period	$	4,222	$	1,447

Supplemental disclosure of non-cash investing and financing activities:
Purchases of property and equipment on trade vendor credit	$	2,243	$	1,994

See accompanying notes to the consolidated financial statements.

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~~LANDEC CORPORATION~~

~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(Unaudited)~~

~~(In thousands)~~
Nine Months Ended
February 27, 2022 February 28, 2021
Cash flows from operating activities:
Net loss $ (60,768) $ (29,799)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Impairment of goodwill 32,057 —
Depreciation, amortization of intangibles, debt costs and right-of-use assets 14,488 14,808
Loss on disposal of property and equipment related to restructuring, net 5,185 7,881
Deferred taxes (5,471) (7,307)
Loss on sale of Eat Smart 4,354 —
Stock-based compensation expense 1,928 2,584
Net loss on disposal of property and equipment held and used 25 39
Provision (benefit) for expected credit losses (14) 284
Change in investment in non-public company, fair value — 11,800
Loss on debt refinancing — 1,110
Other, net (551) (12)
Changes in current assets and current liabilities:
Accounts receivable, net (7,525) 6,345
Inventories (11,910) (10,468)
Prepaid expenses and other current assets (1,448) 350
Accounts payable 13,055 6,372
Accrued compensation (3,849) 2,184
Other accrued liabilities (4,195) 3,186
Deferred revenue 204 1,243
Net cash (used in) provided by operating activities (24,435) 10,600
Cash flows from investing activities:
Proceeds from sale of Eat Smart 73,500 —
Sale of Investment in non-public company 45,100 —
Purchases of property and equipment (18,539) (11,383)
Proceeds from sales of property and equipment 1,096 12,885
Net cash provided by investing activities 101,157 1,502
Cash flows from financing activities:
Proceeds from long-term debt — 150,000
Payments on long-term debt (86,376) (114,095)
Proceeds from lines of credit 45,011 83,000
Payments on lines of credit (34,111) (119,400)
Taxes paid by Company for employee stock plans (518) (297)
Payments for debt issuance costs (169) (9,615)
Net cash used in financing activities (76,163) (10,407)
Net increase in cash, cash equivalents and restricted cash 559 1,695
Cash, cash equivalents and restricted cash, beginning of period 1,295 553
Cash, cash equivalents and restricted cash, end of period $ 1,854 $ 2,248
Supplemental disclosure of non-cash investing and financing activities:
Purchases of property and equipment on trade vendor credit $ 1,765 $ 1,124

~~See accompanying notes to the consolidated financial statements.~~

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LANDEC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Organization, Basis of Presentation, and Summary of Significant Accounting Policies, As Restated

Organization

Landec Corporation and its subsidiaries (“Landec” or the “Company”) design, develop, manufacture, and sell differentiated products for food and biomaterials markets, and license technology applications to partners.

Landec’s biomedical company, Lifecore Biomedical, Inc. (“Lifecore”), is a fully integrated contract development and manufacturing organization (“CDMO”) that offers highly differentiated capabilities in the development, fill and finish of sterile, injectable-grade pharmaceutical products in syringes and vials. As a leading manufacturer of premium, injectable grade Hyaluronic Acid, Lifecore brings 3637 years of expertise as a partner for global and emerging biopharmaceutical and biotechnology companies across multiple therapeutic categories to bring their innovations to market. Lifecore recognizes revenue in 2two different product categories, CDMO and Fermentation.

Landec’s natural food company, Curation Foods, Inc. (“Curation Foods”), is focused on innovating and distributing plant-based foods with 100% clean ingredients to retail, club and foodservice channels throughout North America. Its products are sold in natural food, conventional grocery and mass retail stores, primarily in the United States and Canada. The company categorizes revenue in ~~3 categories,~~three categories: avocado products, olive oil and wine vinegars and technology, which reports revenues for BreatheWay patented supply chain solutions.

Eat Smart Sale and Discontinued Operations

On December 13, 2021 (the “Closing Date”), Landec and Curation Foods (together, the “Sellers”), and Taylor Farms Retail, Inc. (“Taylor Farms” and together with the Sellers, the “Parties”) completed the sale (the “Eat Smart Disposition”) of Curation Foods’ Eat Smart business, including its salad and cut vegetable businesses (the “Business”), pursuant to the terms of an asset purchase agreement executed by the Parties on December 13, 2021 (the “Asset Purchase Agreement”). Pursuant to the Asset Purchase Agreement, Taylor Farms acquired the Business for a purchase price of $73.5 million, subject to post-closing adjustments based upon negotiation of the net working capital balances at the Closing Date. As part of the Eat Smart Disposition, Taylor Farms acquired, among other assets and liabilities related to the Business, the manufacturing facility and warehouses (and corresponding equipment) located in Bowling Green, Ohio and Guadalupe, California, as well as inventory, accounts receivable, accounts payable, intellectual property and information related to the Business, and assumed certain liabilities and executory obligations under the Company’s and Curation Foods’ outstanding contracts related to the Business, in each case, subject to the terms of the Asset Purchase Agreement.

~~Following the Eat Smart Disposition, Curation Foods retains its O Olive Oil & Vinegar ("O")~~ ~~and Yucatan Foods businesses and its rights and interests in BreatheWay, and the Company retains its Lifecore business.~~

~~During the third quarter of its fiscal year, the Company used net proceeds from the Eat Smart Disposition to repay $67.9 million in borrowings under the Company’s existing credit agreements.~~

The accounting requirements for reporting the Eat Smart business as a discontinued operation were met when the Eat Smart Disposition was completed on the Closing Date. Accordingly, the consolidated financial statements and notes to the consolidated financial statements reflect the results of the Eat Smart business as a discontinued operation for ~~all~~the periods presented. A loss of $4.4 million from the Eat Smart Disposition is included in Loss from discontinued operations, net of tax, within the Consolidated Statements of Comprehensive (Loss) Income during the three and nine months ended February 27, 2022. Refer to Note 9 - Discontinued Operations for additional information.

Basis of Presentation

The accompanying unaudited consolidated financial statements of Landec have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments (consisting of normal recurring accruals) have been made which are necessary to present fairly the financial position of the Company at ~~February 27,~~August 28, 2022, and the results of operations and cash flows for all periods presented. Although Landec believes that the disclosures in these financial statements are adequate to make the information presented not misleading, certain information normally included in financial statements and related footnotes prepared in accordance with GAAP have been condensed or omitted in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”). The accompanying financial data should be reviewed in conjunction

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with the audited financial statements and accompanying notes included in Landec's Annual Report on Form ~~10-K~~10-K/A for the fiscal year ended May ~~30, 2021~~29, 2022 (the “Annual Report”).

The Company’s fiscal year is the 52- or 53-week period that ends on the last Sunday of May with quarters within each year ending on the last Sunday of August, November, and February; however, in instances where the last Sunday would result in a quarter being 12-weeks in length, the Company’s policy is to extend that quarter to the following Sunday. A 14th week is included in the fiscal year every five or six years to realign the Company’s fiscal quarters with calendar quarters.

The results of operations for the ~~nine~~three months ended ~~February 27,~~August 28, 2022 are not necessarily indicative of the results that may be expected for an entire fiscal year because there is some seasonality in Curation Foods’ business and the order patterns of Lifecore’s customers which may lead to significant fluctuations in Landec’s quarterly results of operations.

Basis of Consolidation

The consolidated financial statements are presented on the accrual basis of accounting in accordance with GAAP and include the accounts of Landec Corporation and its subsidiaries, Lifecore and Curation ~~Foods and Lifecore.~~Foods. All material inter-company transactions and balances have been eliminated.

Arrangements that are not controlled through voting or similar rights are reviewed under the guidance for variable interest entities (“VIEs”). A company is required to consolidate the assets, liabilities and operations of a VIE if it is determined to be the primary beneficiary of the VIE.

An entity is a VIE and subject to consolidation, if by design: (a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support provided by any parties, including equity holders or (b) as a group the holders of the equity investment at risk lack any one of the following three characteristics: (i) the power, through voting rights or similar rights to direct the activities of an entity that most significantly impact the entity’s economic performance, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity. The Company reviewed the consolidation guidance and concluded that the equity investment in the non-public company by the Company is not a VIE.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make certain estimates and judgments that affect the amounts reported in the financial statements and accompanying notes. The accounting estimates that require management’s most significant and subjective judgments include revenue recognition; loss contingencies; sales returns and credit losses; recognition and measurement of current and deferred income tax assets and liabilities; the assessment of recoverability of long-lived and indefinite lived assets (including intangible ~~assets)~~assets and goodwill), and inventory; and the valuation and recognition of stock-based compensation.

These estimates involve the consideration of complex factors and require management to make judgments. The analysis of historical and future trends can require extended periods of time to resolve and are subject to change from period to period. The actual results may differ from management’s estimates.

Going Concern

As of May 29, 2022, the Company had cash and cash equivalents of $1.6 million and outstanding borrowings of $138.2 million, net of issuance costs, and as of November 27, 2022, the Company had cash and cash equivalents of $6.8 million and outstanding borrowings of $147.0 million, net of issuance costs. The Company continues to experience unfavorable market conditions leading to lower than projected sales proceeds from the disposition of its Curation Foods businesses.

The Company performed an assessment, which occurred on the date of the filing of this Form 10-Q/A, to determine whether there were conditions or events that, considered in the aggregate, raised substantial doubt about the Company’s ability to continue as a going concern within one year following the date the accompanying consolidated financial statements are being re-issued (the “Amended Filing Date”).

The Company’s ability to meet its liquidity needs for one year following the Amended Filing Date will largely depend on its ability to generate cash in the future. As of November 27, 2022, the Company incurred net losses of $23.8 million, and the Company’s ability to generate cash in the future is subject to general economic, financial, competitive, legislative, regulatory, and other factors that are beyond the Company’s control. Based on the Company’s financial projections as of the Amended Filing Date, the Company does not believe that it will have adequate liquidity to meet its obligations for at least one year following the Amended Filing Date.

The Company further considered how these factors and uncertainties have and could impact its ability to meet the obligations specified in the New Credit Agreements with the Lenders (each as defined in Note 6 - Debt) for at least one year following the Amended Filing Date. As of the Amended Filing Date, the Company determined that it was not in compliance with the covenant under the New Credit Agreements requiring the timely filing of financial statements. In addition, the inclusion of a going concern explanatory paragraph in the auditor’s report issued by Ernst and Young LLP in connection with the restated audited financial statements for the year ended May 29, 2022 included in the Company’s Annual Report on Form 10-K/A also violates the covenants under the New Credit Agreements.

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Agreements during the one-year period following the Amended Filing Date, including the minimum fixed charge coverage ratio covenant for the fiscal quarters ending May 30, 2023 through November 30, 2023; the maximum leverage ratio covenant as of the fiscal quarters ending May 30, 2023 through November 30, 2023; the minimum liquidity covenant for each of the fiscal quarters ended as of February 26, 2023 through May 30, 2024; and the minimum Lifecore gross profit covenant for the fiscal quarters ending February 26, 2023 through August 30, 2023. Pursuant to the terms of the New Credit Agreements, as a result of the Company’s failure to comply with the covenants described above, the agents and the lenders under the New Credit Agreements are entitled to immediately cancel all unfunded commitments and to accelerate the maturity of all of the outstanding debt thereunder, at which time all such outstanding borrowings would become immediately due and payable by the Company. In addition, as a result of such defaults, under the New Credit Agreements, the Company will be subject to increased interest rates for any outstanding borrowings thereunder prior to repayment and, even if the agent and the lenders under the Refinance Revolver (as defined in Note 6 - Debt) do not exercise their rights to immediately accelerate all outstanding obligations, such lenders may refuse to fund additional borrowings thereunder, which the Company relies upon for short-term liquidity needs.

Although the Company is currently in default, as of the Amended Filing Date, the agents and the Lenders have not taken any action to accelerate the maturity of the debt under the New Credit Agreements, nor have the Lenders under the Refinance Revolver indicated that they intend to prevent the Company from incurring additional borrowings thereunder. In such an event, however, the Company does not currently have sufficient liquidity to fund payment of the amounts that would be due under the New Credit Agreements nor does management have projected future cash flows to repay these outstanding borrowings under the New Credit Agreements if such amounts were to become payable. The Company’s inability to raise additional capital on acceptable terms in the near future, whether for purposes of funding payments required under the New Credit Agreements or providing additional liquidity needed for its operations, could have a material adverse effect on its business, results of operations, liquidity and financial condition.

In response to these conditions, the Company is currently in negotiations with the Lenders to seek a forbearance and amendment agreement to remedy the Company’s current and anticipated noncompliance with its covenants under the New Credit Agreements. The Company also intends to conduct a review of its strategic alternatives, which may involve seeking additional or alternative financing or the sale of all or a portion the Company. These processes are ongoing, however, and there can be no assurances that they will result in the completion of any such amendment, transaction or other alternative that would alleviate such conditions under the New Credit Agreements or the circumstances that give rise to substantial doubt about the Company’s ability to continue as a going concern for the twelve-month period following the Amended Filing Date.

Accordingly, the Company determined that it cannot be certain that the Company’s plans and initiatives would be effectively implemented within one year after the Amended Filing Date. Without giving effect to the Company’s plans and initiatives, it is unlikely that the Company will be able to generate sufficient cash flows to meet its required financial obligations, including its debt service and other obligations due to third parties within one year after the Amended Filing Date. The existence of these conditions and events raise substantial doubt about the Company’s ability to continue as a going concern for the twelve-month period following the Amended Filing Date.

The accompanying unaudited consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates continuity of operations, realization of assets and the satisfaction of liabilities in the normal course of business for one year following the Amended Filing Date. As such, the accompanying unaudited consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets and their carrying amounts, or the amount and classification of liabilities that may result should the Company be unable to continue as a going concern.

As a result, all outstanding borrowings under the New Credit Agreements are classified as short term on the Consolidated Balance Sheets as of August 28, 2022 and May 29, 2022.

Cash and Cash Equivalents

The Company records all highly liquid securities with three months or less from date of purchase to maturity as cash equivalents. Cash equivalents consist mainly of money market funds. The market value of cash equivalents approximates their historical cost given their short-term nature.

Reconciliation of Cash and Cash Equivalents ~~andRestrictedCash~~ as presented on the Statements of Cash Flows

The following table provides a reconciliation of cash and cash equivalents and ~~restricted~~ cash ~~reported~~and cash equivalents, discontinued operations within the Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Consolidated Statements of Cash Flows:

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(In thousands)	(In thousands)	February 27, 2022		May 30, 2021		February 28, 2021		May 31, 2020		(In thousands)	August 28, 2022		May 29, 2022		August 29, 2021		May 30, 2021
Cash and cash equivalents	Cash and cash equivalents	$	1,854	$	1,159	$	2,248	$	360	Cash and cash equivalents	$	4,222	$	1,643	$	1,406	$	1,159
Cash and cash equivalents, discontinued operations	Cash and cash equivalents, discontinued operations	—		136		—		—		Cash and cash equivalents, discontinued operations	—		—		41		136
Restricted cash		—		—		—		193

Cash, cash equivalents and restricted cash		$	1,854	$	1,295	$	2,248	$	553

Cash and cash equivalents										Cash and cash equivalents	$	4,222	$	1,643	$	1,447	$	1,295

Inventories

Inventories are stated at the lower of cost (first-in, first-out method) or net realizable value and consist of the following:

(In thousands) February 27, 2022 May 30, 2021
Finished goods $ 42,387 $ 40,204
Raw materials 26,644 16,644
Work in progress 4,669 6,228
Total $ 73,700 $ 63,076


(In thousands)	August 28, 2022		May 29, 2022
Finished goods	$	25,266	$	33,029
Raw materials	27,402		24,221
Work in progress	11,617		9,595
Total	$	64,285	$	66,845

If the cost of the inventories exceeds their net realizable value, provisions are recorded currently to reduce them to net realizable value. The Company also records a provision for slow moving and obsolete inventories based on the estimate of demand for its products.

Accounts Receivable, Sales Returns and Allowance for Credit Losses

The Company carries its accounts receivable at their face amounts less an allowance for estimated sales returns and credit losses. Sales return allowances are estimated based on historical sales return amounts.

The Company uses the loss rate method to estimate its expected credit losses on trade accounts receivable and contract assets. In order to estimate expected credit losses, the Company assessed recent historical experience, current economic conditions and any reasonable and supportable forecasts to identify risk characteristics that are shared within the financial asset. These risk characteristics are then used to bifurcate the loss rate method into risk pools. The risk pools were determined based on the industries in which the Company operates. Historical credit loss for each risk pool is then applied to the current period aging as presented in the identified risk pools to determine the needed reserve allowance. At times when there are no current economic conditions or forecasts that may affect future credit losses, the Company has determined that recent historical experience provides the best basis for estimating credit losses.

The information obtained from assessing historical experience, current economic conditions and reasonable and supportable forecasts were used to identify risk characteristics that can affect future credit loss experience. There were no significant risk characteristics identified in the review of historical experiences or in the review of estimates of current economic conditions and forecasts.

Estimating credit losses based on risk characteristics requires significant judgment by management. Significant judgments include, but are not limited to: assessing current economic conditions and the extent to which they are relevant to the existing characteristics of the Company’s financial assets, the estimated life of financial assets, and the level of reliance on historical experience in light of economic conditions. The Company will continually review and update, when necessary, its

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historical risk characteristics that are meaningful to estimating credit losses, any new risk characteristics that arise in the natural course of business, and the estimated life of its financial assets.

The changes in the Company’s allowance for sales returns and credit losses are summarized in the following table (in thousands):

Balance at
beginning of
period Provision (benefit) for expected credit losses Write offs,
net of
recoveries Balance at
end of period
Nine months ended February 27, 2022 $ 85 $ (14) $ (6) $ 65
Nine months ended February 28, 2021 $ 186 $ 284 $ (385) $ 85


	Balance at beginning of period		Provision (benefit) for expected credit losses		Write offs, net of recoveries		Balance at end of period
Three months ended August 29, 2021	$	85	$	—	$	—	$	85
Three months ended August 28, 2022	$	65	$	—	$	—	$	65

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~~Related Party Transactions~~

The Company sells and licenses its BreatheWay® food packaging technology to Windset Holdings 2010 Ltd. (“Windset”), in which, as further described in Note 2 - Investment in Non-public Company, the Company had a 26.9% ownership interest until it sold that interest on June 1, 2021. During the three and nine months ended February 28, 2021, the Company recognized revenues of $0.2 million and $0.4 million, respectively, from product sales to and license fees from Windset. This amount has been included in Product sales in the accompanying Consolidated Statements of Comprehensive (Loss) Income. The receivable balance of $0.1 million is included in Accounts receivable in the accompanying Consolidated Balance Sheets as of May 30, 2021.

~~All related party transactions are monitored quarterly by the Company and approved by the Audit Committee of the Board of Directors.~~

Debt Issuance Costs

The Company records its line of credit debt issuance costs as an asset, and as such, $0.7 million and ~~$1.9~~$1.7 million were recorded as Prepaid expenses and other current assets, and Other assets in the accompanying Consolidated Balance Sheets, respectively, as of ~~February 27,~~August 28, 2022, and $0.7 million and ~~$2.4~~$1.9 million, respectively, as of May ~~30, 2021.~~29, 2022. The Company records its term debt issuance costs as a contra-liability, and as such, ~~$1.4~~$1.5 million and ~~$4.1~~$3.6 million was recorded as ~~Other accrued liabilities,~~Current portion of long-term debt, net, and Long-term debt, net in the accompanying Consolidated Balance Sheets, respectively, as of ~~February 27,~~August 28, 2022 and ~~$1.4~~$1.5 million and ~~$5.1~~$4.0 million, respectively, as of May ~~30, 2021.~~29, 2022.

Financial Instruments

The Company’s financial instruments are primarily composed of commercial-term trade payables, debt instruments, and derivative instruments. For short-term instruments, the historical carrying amount approximates the fair value of the instrument. The fair value of long-term debt and lines of credit approximates their carrying value.

Cash Flow Hedges

The Company has entered into interest rate swap agreements to manage interest rate risk. These derivative instruments may offset a portion of the changes in interest expense. The Company designates these derivative instruments as cash flow hedges. The Company accounts for its derivative instruments as either an asset or a liability and carries them at fair value in Other assets or Other non-current liabilities. The accounting for changes in the fair value of the derivative instrument depends on the intended use of the derivative instrument and the resulting designation.

For derivative instruments that hedge the exposure to variability in expected future cash flows and are designated as cash flow hedges, the entire change in the fair value of the hedging instrument is recorded as a component of Accumulated other comprehensive loss (“AOCL”) in Stockholders’ Equity. Those amounts are subsequently reclassified to earnings in the same line item in the Consolidated Statements of Comprehensive (Loss) Income as impacted when the hedged item affects earnings. To receive hedge accounting treatment, cash flow hedges must be highly effective in offsetting changes to expected future cash flows on hedged transactions.

During the third quarter of fiscal year 2021, the Company discontinued its hedge accounting prospectively since it was determined that the derivatives are no longer highly effective in offsetting changes in the net investment. The derivatives continue to be carried at fair value in the accompanying Consolidated Balance Sheets with changes in their fair values from the date of discontinued hedge accounting recognized in current period earnings in Other income (expense), net in the Consolidated Statements of Comprehensive (Loss) Income. Amounts previously accumulated in AOCL during the period of effectiveness will

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continue to be realized over the remaining term of the underlying forecasted debt payments as a component of AOCL in Stockholders’ Equity.

Accumulated Other Comprehensive Loss

Comprehensive income (loss) consists of two components, net loss and Other comprehensive income (loss) (“OCI”). OCI refers to revenue, expenses, and gains and losses that under GAAP are recorded as a component of stockholders’ equity but are excluded from net loss. The Company’s OCI consists of net deferred gains and losses on its interest rate swap derivative instruments. The components of AOCL, net of tax, are as follows:


(In thousands)	AOCL
Balance as of May ~~30, 2021~~29, 2022	$	~~(1,358)~~(586)

Amounts reclassified from OCI	~~646~~300
Other comprehensive income, net	$	~~646~~300
Balance as of ~~February 27,~~August 28, 2022	$	~~(712)~~(286)

The Company expects to reclassify approximately $0.3 million into earnings in the next 12 months.

~~Investment in Non-Public Company~~

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~~On February 15, 2011, the Company made an investment in Windset which is reported at fair value in the accompanying Consolidated Balance Sheets as~~

Table of May 30, 2021. The Company has elected to account for its investment in Windset under the fair value option. See Note 2 – Investment in Non-public Company for further information. On June 1, 2021, the Company sold all of its equity interest in Windset to the Newell Capital Corporation and Newell Brothers Investment 2 Corp.Contents

Assets Held for Sale

In January 2020, the Company decided to seek to divest its Curation Foods salad dressing plant in Ontario, California (“Ontario”). During fiscal year 2020, the Company (1) designated the fixed assets of its office and manufacturing space located in Ontario, California, as assets held for sale, and (2) recognized a $10.9 million impairment loss. In the first quarter of fiscal year 2021, the Company sold its interest in Ontario. The Company received net cash proceeds of $4.9 million in connection with the sale, and recorded a gain of $2.8 million during the nine months ended February 28, 2021~~, which is included in loss from discontinued operations within the Consolidated Statements of Comprehensive (Loss) Income.~~

In June 2020 the Board of Directors approved a plan to close Curation Foods’ underutilized manufacturing operations in Hanover, Pennsylvania (“Hanover”), sell the building and assets related thereto, and consolidate its operations into its manufacturing facilities in Guadalupe, California and Bowling Green, Ohio. In the first quarter of fiscal year 2021, the Company recognized an $8.8 million impairment loss, which is included in loss from discontinued operations within the Consolidated Statements of Comprehensive (Loss) Income. During the second quarter of fiscal year 2021, the Company sold the Hanover building and assets related thereto for net proceeds of $8.0 million, no gain or loss was recorded upon the sale.

In May 2021 the Board of Directors approved a plan to sell Curation Foods’ Rock Hill, South Carolina distribution facility. The $0.5 million carrying value of this asset was included in current assets, discontinued operations on the Consolidated Balance Sheets as of May 30, 2021, and was classified as an asset held for sale. There was no impairment recorded in fiscal year 2021. The asset was sold on June 9, 2021 for gross proceeds of $1.1 million. A gain of $0.6 million was recorded upon the sale, which is included in loss from discontinued operations within the Consolidated Statements of Comprehensive (Loss) Income.

~~As discussed~~In May 2022 the Board of Directors approved a plan to sell the assets of Curation Foods’ BreatheWay packaging technology business. The $1.0 million carrying value of these assets ($0.9 million of inventory and $0.1 million net book value of property and equipment) are included in ~~Note 1 – Organization, Basis~~Prepaid expenses and other current assets on the Consolidated Balance Sheets as of ~~Presentation,~~May 29, 2022, and ~~Summary of Significant Accounting Policies – Eat Smart Sale and Discontinued Operations,~~were classified as assets held for sale. There was no impairment recorded in fiscal year 2022. These assets were sold during the ~~third~~first quarter of fiscal year ~~2022,~~2023 for net proceeds of $3.1 million. A gain of $2.1 million was recorded upon the Company sold its Eat Smart business. As a result, the Company met the requirements of ASC 205-20, to report the results of the Eat Smart business as a discontinued operation. Accordingly, the carrying amounts of the major classes of assets and liabilities of the Eat Smart businesssale, which is included in ~~assets~~Selling, general and ~~liabilities~~administrative within the Consolidated Statements of ~~discontinued operations as of May 30, 2021. See Note 9 – Discontinued Operations for additional discussion of the Discontinued Operations.~~

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~~Table of Contents~~Comprehensive (Loss) Income.

Leases

Under Topic 842, the Company determines if an arrangement is a lease at inception. Right-of-use (“ROU”) assets and liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. As most of the leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The incremental borrowing rate is a quoted rate based on the understanding of what the Company's credit rating would be. Certain agreements may contain the option to extend the lease term, terminate the lease before the contractual expiration date, or purchase the leased asset. The Company, when reasonably certain to exercise the option, considers these options in determining the measurement of the lease. The Company's lease agreements do not contain any material residual value guarantees.

The Company's lease agreements generally contain lease and non-lease components. Non-lease components primarily include payments for maintenance and utilities. The Company combines fixed payments for non-lease components with lease payments and accounts for them together as a single lease component which increases the amount of lease assets and liabilities.

Payments under lease arrangements are primarily fixed; however, certain lease agreements contain variable payments, which are expensed as incurred and are not included in the operating lease assets and liabilities. These amounts primarily include payments affected by changes in price indices.

Intangible Assets

The Company’s intangible assets are comprised of customer relationships with a finite estimated useful life of 12 years, and trademarks/tradenames and goodwill with indefinite useful lives.

~~Impairment Review of Goodwill and Indefinite-Lived Intangible Asset~~

The Company tests its goodwill and trademarks with indefinite lives annually for impairment in the fiscal fourth quarter or earlier if there are indications during a different interim period that these assets may have become impaired.

On a quarterly basis, the Company considers the need to update its most recent annual tests for impairment of its indefinite-lived intangible assets and goodwill, based on management’s assessment of changes in its business and other economic factors since the most recent annual evaluation. Such changes, if significant or material, could indicate a need to update the most recent annual tests for impairment of goodwill and indefinite-lived intangible assets during the current period. The results of these tests could lead to write-downs of the carrying values of these assets in the current period.

With respect to goodwill, the Company has the option to first assess qualitative factors such as macro-economic conditions, industry and market environment, cost factors, overall financial performance of the Company, cash flow from operating activities, market capitalization, litigation, and stock price. If the result of a qualitative test indicates a potential for impairment of a reporting unit, a quantitative test is performed. The quantitative test compares the carrying amount of a reporting unit that includes goodwill to its fair value. The Company determines the fair value using both an income approach and a market approach. Under the income approach, fair value is determined based on estimated future cash flows, discounted by an estimated weighted-average cost of capital, which reflects the overall level of inherent risk of the Company and the rate of return an outside investor could expect to earn. Under the market-based approach, information regarding the Company is utilized along with publicly available industry information to determine earnings multiples that are used to value the Company. A goodwill impairment loss is recognized for the amount that the carrying amount of a reporting unit, including goodwill, exceeds its fair value, limited to the total amount of goodwill allocated to that reporting unit.

To determine the fair value of a reporting unit as part of its quantitative test, the Company uses a discounted cash flow ("DCF") method under the income approach, as it believes that this approach is the most reliable indicator of the fair value of its businesses and the fair value of their future earnings and cash flows. Under this approach, which requires significant judgments, the Company estimates the future cash flows of each reporting unit and discounts these cash flows at a rate of return that reflects their relative risk. The cash flows used in the DCF method are consistent with those the Company uses in its internal planning, which gives consideration to actual business trends experienced, and the broader business strategy for the long term. The other key estimates and factors used in the DCF method include, but are not limited to, future volumes, net sales and expense growth rates, and gross margin and gross margin growth rates. Changes in such estimates or the application of alternative assumptions could produce different results.

For trademarks and other intangible assets with indefinite lives, the Company performs a quantitative analysis to test for impairment. When a quantitative test is performed, the estimated fair value of an asset is compared to its carrying amount. If the

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carrying amount of such asset exceeds its estimated fair value, an impairment charge is recorded for the difference between the carrying amount and the estimated fair value. The Company uses the income approach to estimate the fair value of its trademarks. This approach requires significant judgments in determining the royalty rates and the assets’ estimated cash flows as well as the appropriate discount rates applied to those cash flows to determine fair value. Changes in such estimates or the use of alternative assumptions could produce different results.

During the three and nine months ended February 27, 2022, the Company recorded an impairment charge of $0 and $32.1 million, respectively, related Goodwill for the Eat Smart business. The impairment charge was primarily a result of an indication of a decrease in the fair market value of our Eat Smart business driven by lower market valuations for the Eat Smart business and a decrease in projected cash flows. This impairment charge is included in the loss from discontinued operations within the Consolidated Statements of Comprehensive (Loss) Income.

Fair Value Measurements

The Company uses fair value measurement accounting for financial assets and liabilities and for financial instruments and certain other items measured at fair value. The Company has elected the fair value option for its investment in a non-public company. The Company has not elected the fair value option for any of its other eligible financial assets or liabilities.

The accounting guidance established a three-tier hierarchy for fair value measurements, which prioritizes the inputs used in measuring fair value as follows:

Level 1 – observable inputs such as quoted prices for identical instruments in active markets.

Level 2 – inputs other than quoted prices in active markets that are observable either directly or indirectly through corroboration with observable market data.

Level 3 – unobservable inputs in which there is little or no market data, which would require the Company to develop its own assumptions.

As of ~~February 27,~~August 28, 2022 and May ~~30, 2021,~~29, 2022, the Company held certain assets and liabilities that are required or it elected to be measured at fair value on a recurring basis, including its interest rate swap contracts. The investment in Windset was required to be measured at fair value on a recurring basis at May 30, 2021, and is included in other assets, discontinued operations in the accompanying Consolidated Balance Sheets.

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The fair value of the Company’s interest rate swap contracts is determined based on model inputs that can be observed in a liquid market, including yield curves, and is categorized as a Level 2 fair value measurement and is included in ~~Other~~Prepaid expenses and other current assets ~~or Other non-current liabilities~~ in the accompanying Consolidated Balance Sheets.

As of May ~~30, 2021,~~29, 2022, related to the assets of Curation Foods’ ~~distribution facility in Rock Hill, South Carolina~~BreatheWay packaging technology business, the Company had ~~$0.5~~$1.0 million in Prepaid expenses and other current assets ~~discontinued operations~~ within the Consolidated Balance Sheet meeting the criteria of ~~assets~~ held for sale. These assets are recognized at the lower of cost or fair value less cost to sell using market approach. The fair value of these assets are classified as level 3 in the fair value hierarchy due to a mix of unobservable inputs utilized such as independent research in the market as well as actual quotes from market participants.

The Company elected the fair value option of accounting for its investment in Windset. The calculation of fair value utilized significant unobservable inputs, including projected cash flows, growth rates, and discount rates. As a result, the Company’s investment in Windset was considered to be a Level 3 measurement investment. The Company sold its entire investment in Windset on June 1, 2021 for $45.1 million. No gain or loss was recorded upon the sale of the Company’s investment in Windset.

~~In determining the fair value of the investment in Windset, the Company utilized the following significant unobservable inputs in the discounted cash flow models:~~


	February 27, 2022 Range (Weighted Average)	May 30, 2021 Range (Weighted Average)
~~Revenue growth rates~~	~~N/A~~	~~7% (6.9%)~~
~~Expense growth rates~~	~~N/A~~	~~0% to 8% (5.5%)~~

~~Discount rates~~	~~N/A~~	~~10%~~

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Imprecision in estimating unobservable market inputs can affect the amount of gain or loss recorded for a particular position. The use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

The following table summarizes the fair value of the Company’s assets and liabilities that are measured at fair value on a recurring and nonrecurring ~~basis:~~

(In thousands) Fair Value at February 27, 2022 Fair Value at May 30, 2021
Assets: Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
Current assets, discontinued operations
Assets held for sale - nonrecurring $ — $ — $ — $ — $ — $ 515
Other assets, discontinued operations
Investment in non-public company — — — — — 45,100
Total assets $ — $ — $ — $ — $ — $ 45,615
Liabilities:
Interest rate swap contracts $ — $ 348 $ — $ — $ 1,736 $ —
Total liabilities $ — $ 348 $ — $ — $ 1,736 $ —
basis (in thousands):

~~The following table reflects the fair value roll forward reconciliation of Level 3 assets and liabilities measured at fair value for the nine months ended February 27, 2022:~~


~~(In thousands)~~	~~Windset Investment~~
~~Balance as of May 30, 2021~~	$	~~45,100~~
~~Sale of Investment in non-public company~~	~~(45,100)~~
~~Balance as of February 27, 2022~~	$	—


	Fair Value at August 28, 2022						Fair Value at May 29, 2022
Assets:	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Assets held for sale - nonrecurring	$	—	$	—	$	—	$	—	$	—	$	1,027
Current assets, discontinued operations
Assets held for sale - nonrecurring	—		86		—		—		—		—
Property & equipment, as restated	$	—	$	—	$	—	$	—	$	3,500	$	1,400
Customer relationships, as restated	$	—	$	—	$	—	$	—	$	—	$	4,000
Total assets	$	—	$	86	$	—	$	—	$	3,500	$	6,427

Revenue Recognition

The Company follows the five step, principles-based model to recognize revenue upon the transfer of promised goods or services to customers and in an amount that reflects the consideration for which the Company expects to be entitled in exchange for those goods or services. Revenue, net of estimated allowances and returns, is recognized when or as the Company satisfies its performance obligations under a contract and control of the product is transferred to the customer.

Lifecore

Lifecore generates revenue from two integrated activities: CDMO and Fermentation. CDMO is comprised of aseptic and development services. Lifecore’s standard terms of sale are generally included in its contracts and purchase orders. Shipping and other transportation costs charged to customers are recorded in both revenue and cost of goods sold. Lifecore has elected to account for shipping and handling as fulfillment activities, and not as a separate performance obligation. Lifecore’s standard payment terms with its customers generally range from 30 days to 60 days.

Aseptic

Lifecore provides aseptic formulation and filling of syringes and vials with precisely formulated medical grade HA and non-HA materials for injectable products used for medical purposes. In instances where our customers contract with us to aseptically fill syringes or vials with our HA, the goods are not distinct in the context of the contract. Lifecore recognizes revenue for these products at the point in time when legal title to the product is transferred to the customer, which is at the time that shipment is made or upon delivery of the product.

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Development Services

Lifecore provides product development services to assist its customers in obtaining regulatory approval for the commercial sale of their drug product. These services include activities such as technology development, material component changes, analytical method development, formulation development, pilot studies, stability studies, process validation and production of materials for use within clinical studies. The Company’s customers benefit from the expertise of its scientists who have extensive experience performing such tasks.

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Each of the promised goods and services are not distinct in the context of the contract as the goods and services are highly interdependent and interrelated. The services described above are significantly affected by each other because Lifecore would not be able to fulfill its promise by transferring each of the goods or services independently.

Revenues generated from development services arrangements are recognized over time as Lifecore is creating an asset without an alternate use as it is unique to the customer. Furthermore, the Company has an enforceable right to payment for the performance completed to date for its costs incurred in satisfying the performance obligation plus a reasonable profit margin. For each of the development activities performed by Lifecore as described above, labor is the primary input (i.e., labor costs represent the majority of the costs incurred in the completion of the services). The Company determined that labor hours are the best measure of progress as it most accurately depicts the effort extended to satisfy the performance obligation over time.

Fermentation

Lifecore manufactures and sells pharmaceutical-grade sodium hyaluronate (“HA”) in bulk form to its customers. The HA produced is distinct as customers are able to utilize the product provided under HA supply contracts when they obtain control. Lifecore recognizes revenue for these products at the point in time when legal title to the product is transferred to the customer, which is at the time that shipment is made or upon delivery of the product to our customer.

During the third fiscal quarter, we entered into one bill-and-hold arrangement with a customer under which $1.5 million of product sales were recognized in the three and nine months ended February 27, 2022. Revenue for bill-and-hold arrangements is recognized when control transfers to the customer, even though the customer does not have physical possession of the goods. Control transfers when the bill-and-hold arrangement has been determined to have substantive reason, the product is identified as belonging to the customer, the product is ready for physical transfer to the customer and the product cannot be used or directed to another customer.

Curation Foods

Curation Foods’ standard terms of sale, both prior to and following the Eat Smart Disposition, are generally included in its contracts and purchase orders. Revenue is recognized at the time shipment is made or upon delivery as control of the product is transferred to the customer. Shipping and other transportation costs charged to customers are recorded in both revenue and cost of goods sold. Curation Foods has elected to account for shipping and handling as fulfillment activities, and not as a separate performance obligation. Curation Foods’ standard payment terms with its customers generally range from 30 days to 90 days. Certain customers may receive cash-based incentives (including: volume rebates, discounts, and promotions), which are accounted for as variable consideration to Curation Foods’ performance obligations. Curation Foods estimates these sales incentives based on the expected amount to be provided to its customers and reduces revenues recognized towards its performance obligations. The Company has not historically had and does not anticipate significant changes in its estimates for variable consideration.

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The Company disaggregates its revenue by segment based on how it markets its products and services and reviews results of operations. The following tables disaggregate segment revenue by major product lines and services:


(In thousands)	(In thousands)	Three Months Ended				Nine Months Ended				(In thousands)	Three Months Ended
Lifecore:	Lifecore:	February 27, 2022		February 28, 2021		February 27, 2022		February 28, 2021				Lifecore:	August 28, 2022		August 29, 2021
Contact development and manufacturing organization		$	24,799	$	18,628	$	63,951	$	53,374
Contract development and manufacturing organization												Contract development and manufacturing organization	$	18,247	$	17,789
Fermentation	Fermentation	10,009		8,597		17,756		18,874				Fermentation	5,456		4,163

Total	Total	$	34,808	$	27,225	$	81,707	$	72,248			Total	$	23,703	$	21,952


(In thousands)	(In thousands)	Three Months Ended				Nine Months Ended				(In thousands)	Three Months Ended
Curation Foods:	Curation Foods:	February 27, 2022		February 28, 2021		February 27, 2022		February 28, 2021				Curation Foods:	August 28, 2022		August 29, 2021
Avocado products	Avocado products	$	15,676	$	15,378	$	48,018	$	47,107			Avocado products	$	17,093	$	16,962
Olive oil and wine vinegars	Olive oil and wine vinegars	2,168		1,647		7,016		5,642				Olive oil and wine vinegars	2,559		2,340
Technology	Technology	422		440		1,417		1,632				Technology	—		378
Total	Total	$	18,266	$	17,465	$	56,451	$	54,381			Total	$	19,652	$	19,680

Contract Assets and Liabilities

Contract assets primarily relate to the Company’s conditional right to consideration for work completed but not billed at the reporting date. The Company’s contract assets as of ~~February 27,~~August 28, 2022 and May ~~30, 2021,~~29, 2022, were ~~$13.9~~$12.8 million and ~~$10.6~~$10.2 million, respectively.

Contract liabilities primarily relate to payments received from customers in advance of performance under the contract. The Company’s contract liabilities as of ~~February 27,~~August 28, 2022 and May ~~30, 2021,~~29, 2022, were ~~$1.6~~$0.8 million and $0.9 million, respectively.

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Revenue recognized during the three ~~and nine~~ months ended ~~February 27,~~August 28, 2022, that was included in the contract liability balance at the beginning of fiscal year ~~2022,~~2023, was ~~$0.0 million and $0.2 million, respectively.~~$0.3 million.

Shipping and Handling Costs

Amounts billed to third-party customers for shipping and handling are included as a component of revenues. Shipping and handling costs incurred are included as a component of cost of products sold and represent costs incurred to ship product from the processing facility or distribution center to the end consumer markets.

Legal Contingencies

In the ordinary course of business, the Company is involved in various legal proceedings and claims.

The Company makes a provision for a liability relating to legal matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least each fiscal quarter and adjusted to reflect the impacts of negotiations, estimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter. Legal fees are expensed in the period in which they are incurred.

Compliance Matters and Related Litigation

On December 1, 2018, the Company acquired all of the voting interests and substantially all of the assets of Yucatan Foods (the “Yucatan Acquisition”), which owns a guacamole manufacturing plant in Mexico called Procesadora Tanok, S de RL de C.V. (“Tanok”).

On October 21, 2019, the Company retained Latham & Watkins, LLP to conduct an internal investigation relating to potential environmental and Foreign Corrupt Practices Act (“FCPA”) compliance matters associated with regulatory permitting at the Tanok facility in Mexico. The Company subsequently disclosed to the U.S. Securities and Exchange Commission (“SEC”) and the U.S. Department of Justice (“DOJ”) the conduct under investigation, and these agencies have commenced an investigation. The Company has also disclosed the conduct under investigation to the Mexican Attorney General’s Office, ~~of the Attorney General in Mexico,~~

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which in December 2021 decided (a) that Curation Foods, Inc., did not commit or participate in the criminal conduct disclosed, (b) no criminal action would be taken against Curation Foods, Inc., (c) that no criminal liability was established against Tanokhas commenced an investigation, and ~~Yucatan Foods after they were acquired by Curation Foods, Inc., and (d) the decisions do not apply~~ to ~~any individuals who may be responsible for misconduct.~~Mexican regulatory agencies. The Company ~~also disclosed the misconduct to other regulators in Mexico. The Company continues to cooperate~~is cooperating in the government investigations and requests for information. The conduct at issue began prior to the Yucatan Acquisition, and the agreement for the Yucatan Acquisition provides the Company with certain indemnification rights that may allow the Company to recover the cost of a portion of the liabilities that have been and may be incurred by the Company in connection with these compliance matters. On September 2, 2020, 1one of the former owners of Yucatan filed a lawsuit against the Company in Los Angeles County Superior Court for breach of employment agreement, breach of contract, breach of holdback agreement, declaratory relief and accounting, and related claims. The Plaintiff seeks over ~~$10.0~~$10 million in damages, including delivery of shares of his stock held in escrow for the indemnification claims described above. On November 3, 2020, the Company filed an answer and cross-complaint against the Plaintiff and other ~~former equity holders of Yucatan~~parties for fraud, indemnification, and other claims, and seeking no less than $80 million in damages.

At this stage, the ultimate outcome of these or any other investigations, legal actions, or potential claims that may arise from the matters under investigation is uncertain and the Company cannot reasonably predict the timing or outcomes, or estimate the amount of net loss after indemnification, or its effect, if any, on its financial statements. Separately, there are indemnification provisions in the purchase agreement that may allow the Company to recover costs for fraud or breach of the purchase agreement from the seller. Because recovery of amounts are contingent upon a legal settlement, no amounts have been recorded as recoverable costs ~~through February 27,~~for the three months ended August 28, 2022.

During the third quarter of fiscal year 2021 the Company reached a resolution with its insurance carrier that resulted in a recovery of $1.6 million which is recorded as a reduction of Selling, general and administrative in the Consolidated Statements of Operations for ~~certain expenses associated with~~ the ~~government investigations.~~fiscal year ended May 30, 2021. Absent further material developments in the investigation, the Company does not expect additional material recovery from the insurance carrier.

Correction of Error in Previously Reported Interim Financial Statements (Unaudited)

The Company is restating its previously issued unaudited consolidated financial statements as of and for the three months ended August 28, 2022 (“Prior Financial Statements”) as previously reported in our Quarterly Report on Form 10-Q and filed with the Securities and Exchange Commission on October 7, 2022 (the “Original Quarterly Report”).

The Company has assessed the materiality of these errors in accordance with the Securities and Exchange Commission Staff Accounting Bulletin No. 99 (“SAB”), Materiality and SAB No. 108, Quantifying Financial Statement Misstatements, and has concluded that the errors are material to the financial statements and therefore the Prior Financial Statements should be

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restated. The Restatement did not impact or require corrections to the financial information related to the Lifecore segment in the Prior Financial Statements.

This restatement reflected in the tables below results from corrections by us related to:

(i) adjustments to the amounts of depreciation of property and equipment and amortization of long-lived assets related to Yucatan Foods, including its related tax effect; and

(ii) adjustments to the amounts of property and equipment, customer relationships and tradename resulting from the impairment of long-lived and indefinite-lived assets related to Yucatan Foods.

The effects of these errors on our previously reported unaudited consolidated balance sheet as presented in the Original Quarterly Report are as follows:


	As reported				As restated
(in thousands)	August 28, 2022		Adjustment		August 28, 2022
ASSETS
Property and equipment, net	$	129,024	$	(11,473)	$	117,551
Trademarks/tradenames, net	$	8,400	$	300	$	8,700
Customer relationships, net	$	6,875	$	(5,529)	$	1,346
Total Assets	$	285,800	$	(16,702)	$	269,098

LIABILITIES AND STOCKHOLDERS’ EQUITY
Deferred tax liability, net	$	291	$	(167)	$	124
Total Liabilities	$	188,901	$	(167)	$	188,734
Accumulated deficit	$	(70,915)	$	(16,535)	$	(87,450)
Total Stockholders’ Equity	$	96,899	$	(16,535)	$	80,364
Total Liabilities and Stockholders’ Equity	$	285,800	$	(16,702)	$	269,098

The effects of this error on our previously reported interim consolidated statement of comprehensive (loss) income for the three-month period ended August 28, 2022 as presented in the Original Prior Quarterly Report are as follows:

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	Three Months Ended
	As reported				As restated
	August 28, 2022		Adjustment		August 28, 2022
Product sales	$	43,355	$	—	$	43,355
Cost of product sales	37,534		(431)		37,103
Gross profit	5,821		431		6,252
Operating costs and expenses:
Research and development	2,048		—		2,048
Selling, general and administrative	10,883		(222)		10,661



Restructuring costs	1,047		—		1,047
Total operating costs and expenses	13,978		(222)		13,756
Operating loss	(8,157)		653		(7,504)

Interest income	15		—		15
Interest expense	(3,678)		—		(3,678)

Other income (expense), net	(180)		—		(180)
Net loss before tax	(12,000)		653		(11,347)
Income tax (expense) benefit	(64)		60		(4)
Net loss from continuing operations	(12,064)		713		(11,351)




Loss from discontinued operations, net of tax	—		—		—
Net loss	$	(12,064)	$	713	$	(11,351)

Basic net loss per share:
Loss from continuing operations	$	(0.41)	$	0.03	$	(0.38)
Loss from discontinued operations	—		—		—
Total basic net loss per share	$	(0.41)	$	0.03	$	(0.38)

Diluted net loss per share:
Loss from continuing operations	$	(0.41)	$	0.03	$	(0.38)
Loss from discontinued operations	—		—		—
Total diluted net loss per share	$	(0.41)	$	0.03	$	(0.38)








Total comprehensive loss	$	(11,764)	$	713	$	(11,051)

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The effects of this error on our previously reported consolidated statement of changes in stockholders' equity for the year ended August 28, 2022 as presented in the Prior Quarterly Report are as follows:


	As reported		As reported		Adjustment		As restated		As restated
	Retained Earnings (Accumulated Deficit)		Total Stockholders’ Equity				Retained Earnings (Accumulated Deficit)		Total Stockholders’ Equity
(In thousands)
Balance at May 29, 2022	$	(58,851)	$	107,945	$	(17,248)	$	(76,099)	$	90,697
Issuance of stock under stock plans, net of shares withheld	—		—		—		—		—
Taxes paid by Company for employee stock plans	—		(67)		—		—		(67)
Stock-based compensation	—		785		—		—		785
Net loss	(12,064)		(12,064)		713		(11,351)		(11,351)
Other comprehensive income, net of tax	—		300		—		—		300
Balance at August 28, 2022	$	(70,915)	$	96,899	$	(16,535)	$	(87,450)	$	80,364

The effects of this error on our previously reported consolidated statement of cash flows for the three-month period ended August 28, 2022 as presented in the Original Prior Quarterly Report are as follows:


	Three Months Ended
	As reported				As restated
(in thousands)	August 28, 2022		Adjustment		August 28, 2022
Cash flows from operating activities:
Net loss	$	(12,064)	$	713	$	(11,351)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, amortization of intangibles, debt costs and right-of-use assets	$	5,009	$	(653)	$	4,356
Deferred taxes	$	43	$	(60)	$	(17)









Net cash (used in) provided by operating activities	$	(1,533)	$	—	$	(1,533)

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The effects of this error on our previously reported diluted earnings per share for the three-month period ended August 28, 2022 as presented in Note 4 - Diluted Earnings of the unaudited consolidated financial statements reported in the Original Prior Quarterly Report are as follows:


	Three Months Ended
	As reported				As restated
(in thousands, except per share amounts)	August 28, 2022		Adjustment		August 28, 2022
Numerator:
Net loss	$	(12,064)	$	713	$	(11,351)

Denominator:
Weighted average shares for basic and diluted net loss per share	29,577		—		29,577

Basic Diluted net loss per share	$	(0.41)	$	0.03	$	(0.38)

The effects of this error on our previously reported income taxes per share for the three-month period ended August 28, 2022 as presented in Note 5 - Income Taxes of the unaudited consolidated financial statements reported in the Original Prior Quarterly Report are as follows:


	Three Months Ended
	As reported						As restated
(in thousands, except effective tax rate)	August 28, 2022			Adjustment			August 28, 2022

Income tax (expense) benefit	$	0.1	million	$	(0.1)	million	$	4.0	thousand
Effective Tax Rate	0.5		%	(0.5)		%	—		%

The effects of this error on our previously reported operations by business segment for the three-month period ended August 28, 2022 as presented in Note 7 - Business Segment Reporting of the unaudited consolidated financial statements reported in the Original Prior Quarterly Report are as follows:


(In Thousands)	Lifecore		Curation Foods		Other		Total
Three Months Ended August 28, 2022
Depreciation and amortization, as reported	$	1,771	$	2,820	$	11	$	4,602
Adjustment	—		(653)		—		(653)
Depreciation and amortization, as restated	$	1,771	$	2,167	$	11	$	3,949

Net income (loss) from continuing operations, as reported	$	502	$	(3,374)	$	(9,192)	$	(12,064)
Adjustment	—		653		60		713
Net income (loss) from continuing operations, as restated	$	502	$	(2,721)	$	(9,132)	$	(11,351)

Gross Profit, as reported	$	6,101	$	(280)	$	—	$	5,821
Adjustment	—		431		—		431
Gross Profit, as restated	$	6,101	$	151	$	—	$	6,252

Income tax (benefit) expense, as reported	$	158	$	(1,065)	$	971	$	64
Adjustment	—		—		(60)		(60)
Income tax (benefit) expense, as restated	$	158	$	(1,065)	$	911	$	4

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2. Investment in Non-public Company

On February 15, 2011, Curation Foods entered into a share purchase agreement (the “Windset Purchase Agreement”) with Windset. Pursuant to the Windset Purchase Agreement, Curation Foods purchased from Windset 150,000 Senior A preferred shares for $15.0 million and 201 common shares for $201. On July 15, 2014, Curation Foods increased its investment in Windset by purchasing from the Newell Capital Corporation an additional 68 common shares and 51,211 junior preferred shares of Windset for $11.0 million. After this purchase, the Company’s common shares represented a 26.9% ownership interest in Windset. The Senior A preferred shares yielded a cash dividend of 7.5% annually. The dividend was payable within 90 days of each anniversary of the execution of the Windset Purchase Agreement. The non-voting junior preferred stock did not yield a dividend unless declared by the Board of Directors of Windset and no such dividend has been declared.

The fair value of the Company’s investment in Windset was determined utilizing the Windset Purchase Agreement’s put/call calculation for value and a discounted cash flow model based on projections developed by Windset that were reviewed by Landec, and considers the put and call conversion options. These features impact the duration of the cash flows utilized to derive the estimated fair values of the investment. These two discounted cash flow models’ estimate for fair value are then weighted. Assumptions included in these discounted cash flow models will be evaluated quarterly based on Windset’s actual and projected operating results to determine the change in fair value.

During the three and nine months ended February 28, 2021, the Company recorded $0.3 million and $0.8 million in dividend income, respectively, which is included in loss from discontinued operations in the accompanying Consolidated Statements of Comprehensive (Loss) Income. The change in the fair market value of the Company’s investment in Windset for the three and nine months ended February 28, 2021 was a decrease of $0 and $11.8 million, respectively, and is included in loss from discontinued operations in the accompanying Consolidated Statements of Comprehensive (Loss) Income.

On June 1, 2021, the Company and Curation Foods entered into and closed a Share Purchase Agreement (the “Purchase Agreement”) with Newell Capital Corporation and Newell Brothers Investment 2 Corp., as Purchasers (the “Purchasers”) and Windset, pursuant to which Curation Foods sold all of its equity interests of Windset to the Purchasers in exchange for an aggregate purchase price of $45.1 million.

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3. Stock-based Compensation and Stockholders' Equity

Stock-Based Compensation Activity

The estimated fair value for stock options, which determines the Company’s calculation of stock-based compensation expense, is based on the Black-Scholes option pricing model. Restricted stock units (“RSUs”) are valued at the closing market price of the Company’s common stock on the grant date. The Company uses the straight-line method to recognize the fair value of stock-based compensation arrangements.

During the three months ended ~~February 27,~~August 28, 2022, the Company granted ~~75,000~~725,000 options to purchase shares of common stock and awarded ~~18,000 RSUs. During the nine months ended February 27, 2022, the Company granted 778,000 options to purchase shares of common stock and awarded 101,000~~255,000 RSUs.

As of ~~February 27,~~August 28, 2022, the Company has reserved ~~3.8~~3.6 million shares of common stock for future issuance under its current and former equity plans.

Stock-Based Compensation Expense

The Company’s stock-based awards include stock option grants and RSUs. The Company records compensation expense for stock-based awards issued to employees and directors in exchange for services provided based on the estimated fair value of the awards on their grant dates and is recognized over the required service periods, generally the vesting period.

The following table summarizes stock-based compensation by income statement line item:


		Three Months Ended				Nine Months Ended					Three Months Ended
(In thousands)	(In thousands)	February 27, 2022		February 28, 2021		February 27, 2022		February 28, 2021		(In thousands)	August 28, 2022		August 29, 2021
Continuing operations:	Continuing operations:									Continuing operations:
Cost of product sales	Cost of product sales	$	83	$	141	177		$	262	Cost of product sales	$	101	$	81
Research and development	Research and development	51		49		151		175		Research and development	90		49
Selling, general and administrative	Selling, general and administrative	488		641		1,575		2,120		Selling, general and administrative	594		534
Discontinued Operations:	Discontinued Operations:									Discontinued Operations:
Cost of product sales	Cost of product sales	—		(34)		25		27		Cost of product sales	—		(44)
Total stock-based compensation	Total stock-based compensation	$	622	$	797	$	1,928	$	2,584	Total stock-based compensation	$	785	$	620

As of ~~February 27,~~August 28, 2022, there was ~~$3.3~~$6.9 million of total unrecognized compensation expense related to unvested equity compensation awards granted under the Landec incentive stock plans. Total expense is expected to be recognized over the weighted-average period of ~~2.06~~2.43 years for stock options and ~~1.39~~2.24 years for RSUs.

Stock Repurchase Plan

On July 14, 2010, the Board of Directors of the Company approved the establishment of a stock repurchase plan which allows for the repurchase of up to $10.0 million of the Company’s common stock. The Company may still repurchase up to $3.8 million of the Company’s common stock under the Company’s stock repurchase plan. The Company may repurchase its

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common stock from time to time in open market purchases or in privately negotiated transactions. The timing and actual number of shares repurchased is at the discretion of management of the Company and will depend on a variety of factors, including stock price, corporate and regulatory requirements, market conditions, the relative attractiveness of other capital deployment opportunities and other corporate priorities. The stock repurchase program does not obligate Landec to acquire any amount of its common stock and the program may be modified, suspended or terminated at any time at the Company's discretion without prior notice. During the ~~nine~~three months ended ~~February 27,~~August 28, 2022 and August 29, 2021, the Company did not purchase any shares on the open market.

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4. Diluted Earnings Per Share, As Restated

The following table sets forth the computation of diluted earnings per share:

Three Months Ended Nine Months Ended
(In thousands, except per share amounts) February 27, 2022 February 28, 2021 February 27, 2022 February 28, 2021
Numerator:
Net loss applicable to common stockholders $ (12,850) $ (5,498) $ (60,768) $ (29,799)
Denominator:
Weighted average shares for basic net loss per share 29,482 29,323 29,459 29,282
Effect of dilutive securities:
Stock options and restricted stock units — — — —
Weighted average shares for diluted net loss per share 29,482 29,323 29,459 29,282
Diluted net loss per share $ (0.43) $ (0.19) $ (2.07) $ (1.02)


	Three Months Ended
	As restated
(In thousands, except per share amounts)	August 28, 2022		August 29, 2021
Numerator:
Net loss	$	(11,351)	$	(9,477)
Denominator:
Weighted average shares for basic net loss per share	29,577		29,424
Effect of dilutive securities:
Stock options and restricted stock units	—		—
Weighted average shares for diluted net loss per share	29,577		29,424

Diluted net loss per share	$	(0.38)	$	(0.32)

Due to the Company’s net loss for the three ~~and nine~~ months ended ~~February 27,~~August 28, 2022 and ~~February 28,~~August 29, 2021, the net loss per share includes only the weighted average shares ~~outstanding. For the three months ended February 27, 2022~~outstanding and ~~February 28, 2021, the computation of the diluted net loss per share~~thus excludes ~~the impact of~~RSUs and stock options, ~~to purchase 2.1 million and 2.4 million shares of common stock, respectively,~~ as such ~~impacts~~impact would be ~~antidilutive~~antidilutive. See Note 3 - Stock Based Compensation and Stockholders' Equity for ~~these periods. For the nine months ended February 27, 2022~~more information on outstanding RSUs and ~~February 28, 2021, the computation of the diluted net loss per share excludes the impact of options to purchase 2.2 million and 2.2 million shares of common~~ stock ~~respectively, as such impacts would be antidilutive for these periods.~~options.

5. Income Taxes, As Restated

The provision for income taxes from continuing operations for the ~~nine~~three months ended ~~February 27,~~August 28, 2022 and ~~February 28,~~August 29, 2021, was a benefit of ~~$5.0~~$0.0 million, as restated, and ~~$1.0~~a benefit of $1.7 million, respectively. The effective tax rate for the ~~nine~~three months ended ~~February 27,~~August 28, 2022 and ~~February 28,~~August 29, 2021 was ~~32%~~0% and ~~10%~~18%, respectively. The effective tax rate for the ~~nine~~three months ended ~~February 27,~~August 28, 2022, was ~~higher~~lower than the statutory federal income tax rate of 21% primarily due to the movement of the valuation allowance recorded against certain deferred tax assets, partially offset by the impact of federal and state ~~taxes.~~research and development tax credits.

As of ~~February 27,~~August 28, 2022 and May ~~30, 2021,~~29, 2022, the Company had unrecognized tax benefits of ~~$0.9~~$1.1 million and ~~$0.9~~$1.0 million, respectively. Included in the balance of unrecognized tax benefits as of ~~February 27,~~August 28, 2022 and May ~~30, 2021,~~29, 2022, is ~~$0.8~~$1.0 million and $0.9 million, respectively, of tax benefits that, if recognized, would result in an adjustment to the Company’s effective tax rate. The Company does not expect its unrecognized tax benefits to change significantly within the next twelve months.

The Company has elected to classify interest and penalties related to uncertain tax positions as a component of its provision for income taxes. The Company has accrued an insignificant amount of interest and penalties relating to the income tax on the unrecognized tax benefits as of ~~February 27,~~August 28, 2022 and May ~~30, 2021.~~29, 2022.

Due to tax attribute carryforwards, the Company is subject to examination for tax years ~~2017~~2013 forward for U.S. tax purposes. The Company is also subject to examination in various state jurisdictions for tax years ~~2015~~2012 forward, none of which were significant.

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6. Debt

Long-term debt, net consists of the following:


(In thousands)	(In thousands)	February 27, 2022		May 30, 2021		(In thousands)	August 28, 2022		May 29, 2022
Term loan	Term loan	$	83,712	$	170,000	Term loan	$	103,712	$	103,712
Total principal amount of long-term debt	Total principal amount of long-term debt	83,712		170,000		Total principal amount of long-term debt	103,712		103,712
Less: unamortized debt issuance costs	Less: unamortized debt issuance costs	(4,114)		(5,098)		Less: unamortized debt issuance costs	(5,143)		(5,534)
Total long-term debt, net of unamortized debt issuance costs	Total long-term debt, net of unamortized debt issuance costs	79,598		164,902		Total long-term debt, net of unamortized debt issuance costs	98,569		98,178
Less: current portion of long-term debt, net	Less: current portion of long-term debt, net	—		—		Less: current portion of long-term debt, net	(98,569)		(98,178)
Long-term debt, net	Long-term debt, net	$	79,598	$	164,902	Long-term debt, net	$	—	$	—

On December 31, 2020, the Company refinanced its existing ~~Term Loan~~term loan and ~~Revolver~~revolving credit facility by entering into 2two separate Credit Agreements (the "New Credit Agreements") with BMO and Goldman Sachs Specialty Lending Group, L.P. (“Goldman”) and Guggenheim Credit Services, LLC ("Guggenheim"), as lenders (collectively, the “Refinance Lenders”). Pursuant to the credit agreement related to the revolving credit facility, BMO has provided the Company, Curation Foods and Lifecore, as co-borrowers, with an up to $75.0 million revolving line of credit (the “Refinance Revolver”) and serves as administrative agent of the Refinance Revolver. Pursuant to the credit agreement related to the term loan, Goldman and Guggenheim have provided the Company, Curation Foods and Lifecore, as co-borrowers, with an up to $170.0 million term loan facility (split equally between Goldman and Guggenheim) (the “Refinance Term Loan”) and Goldman serves as administrative agent of the Refinance Term Loan. The Refinance Revolver and Refinance Term Loan are guaranteed, and secured by, substantially all of the Company’s and the Company's direct and indirect subsidiaries' assets.

The Refinance Term Loan matures on December 31, 2025. The Refinance Revolver matures on December 31, 2025 or, if the Refinance Term Loan remains outstanding on such date, ninety (90) days prior to the maturity date of the Refinance Term Loan (on October 2, 2025).

The Refinance Term Loan provides for principal payments by the Company of 5% per annum, payable quarterly in arrears in equal installments, commencing on March 30, 2023, with the remainder due at maturity.

Interest on the Refinance Revolver is based upon the Company’s average availability, at a per annum rate of either (i) LIBOR rate plus a spread of between 2.00% and 2.50% or (ii) base rate plus a spread of between 1.00% and 1.50%, plus a commitment fee, as applicable, of 0.375%. Interest on the Refinance Term Loan is at a per annum rate based on either (i) the base rate plus a spread of 7.50% or (ii) the LIBOR rate plus a spread of 8.50%. The Refinance Term Loan Credit Agreement also ~~states~~provides that in the event of a prepayment of any amount other than the scheduled installments within twelve months after the closing date, a penalty will be assessed equal to the aggregate amount of interest that would have otherwise been payable from date of prepayment event until twelve months after the closing date plus 3% of the amount prepaid.

The New Credit Agreements provide the Company the right to increase the revolver commitments under the Refinance Revolver, subject to the satisfaction of certain conditions (including consent from BMO), by obtaining additional commitments from either BMO or another lending institution at an amount of up to $15.0 million.

The New Credit Agreements contain customary financial covenants and events of default under which the obligations thereunder could be accelerated and/or the interest rate increased in specified circumstances.

In connection with the New Credit Agreements, the Company incurred debt issuance costs from the lender and third-parties of ~~$10.5~~$10.3 million.

Concurrent with the close of the New Credit Agreements, the Company repaid all outstanding borrowings under the previous Credit Agreement, and terminated such previous Credit Agreement. In connection with the repayment of borrowings under such previous Credit Agreement, the Company recognized a loss in fiscal year 2021 of $1.1 million, as a result of the non-cash write-off of unamortized debt issuance costs related to the refinancing under the New Credit Agreements.

In April 2022 the Company amended the New Credit Agreements to make available again $20.0 million of term debt that had been previously repaid. In connection with this amendment, the Company incurred debt issuance costs from the lender of $0.7 million.

As of ~~February 27,~~August 28, 2022, ~~$39.9~~$44.0 million was outstanding on the Refinance Revolver, at an interest rate of ~~3.00%~~4.1%. As of ~~February 27,~~August 28, 2022, the Refinance Term Loan had an interest rate of ~~9.5%~~10.1%. As of ~~February 27,~~August 28, 2022, the Company was in

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compliance with all financial covenants and had no events of default under the New Credit Agreements. However, as of the Amended Filing Date, the Company was not in compliance with the covenants under the New Credit Agreements and therefore all outstanding amounts under these agreements, as amended (See Note. 10 Subsequent Events), have been reclassified as current.

Derivative Instruments

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On November 1, 2016, the Company entered into an interest rate swap contract (the “2016 Swap”) with BMO at a notional amount of $50.0 million. The 2016 Swap had the effect of changing the Company’s previous ~~Term Loan~~term loan obligation from a variable interest rate to a fixed 30-day LIBOR rate of 1.22%. The 2016 Swap matured in September 2021.

On June 25, 2018, the Company entered into an interest rate swap contract (the “2018 Swap”) with BMO at a notional amount of $30.0 million. The 2018 Swap had the effect on the Company’s previous debt of converting the first $30.0 million of the total outstanding amount of the Company’s 30-day LIBOR borrowings from a variable interest rate to a fixed 30-day LIBOR rate of 2.74%. The 2018 Swap matured in September 2021.

On December 2, 2019, the Company entered into an interest rate swap contract (the "2019 Swap") with BMO at a notional amount of $110.0 million which decreases quarterly. The 2019 Swap had the effect on our previous debt of converting primarily all of the $110.0 million of the total outstanding amount of the Company's 30-day LIBOR borrowings from a variable interest rate to a fixed 30-day LIBOR rate of 1.53%. The 2019 Swap will mature in November 2022.

7. Business Segment Reporting, As Restated

The Company operates using 3three strategic reportable business segments, aligned with how the Chief Executive Officer, who is the chief operating decision maker (“CODM”), manages the business: the ~~Curation Foods~~Lifecore segment, the ~~Lifecore~~Curation Foods segment, and the Other segment.

The Lifecore segment sells products utilizing hyaluronan, a naturally occurring polysaccharide that is widely distributed in the extracellular matrix of connective tissues in both animals and humans, and non-HA products for medical use primarily in the Ophthalmic, Orthopedic and other markets.

The Curation Foods business includes (i) 3three natural food brands, including O Olive Oil & Vinegar, Yucatan Foods, and Cabo Fresh, and (ii) BreatheWay® activities. The Curation Foods segment includes sales of BreatheWay packaging to partners for fruit and vegetable products, sales of olive oils and wine vinegars under the O brand, and sales of avocado products under the brands Yucatan Foods and Cabo Fresh. In December 2021, the Company completed the Eat Smart Disposition. As a result, the Company met the requirements of ASC 205-20 to report the results of the Eat Smart business as discontinued operations. The operating results for the Eat Smart business, in all periods presented, have been reclassified to discontinued operations and are no longer reported in the Curation Foods business segment. See Note 1 – Organization, Basis of Presentation, and Summary of Significant Accounting Policies – Eat Smart Sale and Discontinued Operations for further discussion.

The Other segment includes corporate general and administrative expenses, non-Lifecore and non-Curation Foods ~~and non-Lifecore~~ interest expense, interest income, and income tax expenses. Corporate overhead is allocated between segments based on actual utilization and relative size.

All of the Company's assets are located within the United States of America except for its Yucatan production facility in Mexico.

The Company’s international sales by geography are based on the billing address of the customer and were as follows, excluding discontinued operations:


		Three Months Ended				Nine Months Ended				Three Months Ended
(In millions)	(In millions)	February 27, 2022		February 28, 2021		February 27, 2022		February 28, 2021			(In millions)	August 28, 2022		August 29, 2021
Switzerland	Switzerland	$	8.2	$	1.6	$	13.6	$	2.4		Switzerland	$	4.0	$	3.4
Canada	Canada	3.0		2.7		9.5		8.3			Canada	3.7		3.5

Belgium		—		6.0		—		12.6

All Other Countries	All Other Countries	3.7		3.9		3.2		3.2			All Other Countries	1.9		1.7

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Operations by business segment consisted of the following:


(In thousands)	(In thousands)	Lifecore		Curation Foods		Other		Total		(In thousands)	Lifecore		Curation Foods		Other		Total
Three Months Ended February 27, 2022
Net sales		$	34,808	$	18,266	$	—	$	53,074
Gross profit		12,905		990		—		13,895
Net (loss) income from continuing operations		5,054		(5,848)		(6,312)		(7,106)
Loss from discontinued operations, net of tax		—		(2,703)		(3,041)		(5,744)
Depreciation and amortization		1,674		1,142		18		2,834
													As restated				As restated
Interest income		18		—		2		20
Interest expense		—		26		4,079		4,105
Income tax (benefit) expense		1,596		(1,867)		(5)		(276)
Corporate overhead allocation		1,175		289		(1,464)		—

Nine Months Ended February 27, 2022
Net sales		$	81,707	$	56,451	$	—	$	138,158
Gross profit		30,384		8,661		—		39,045
Net (loss) income from continuing operations		11,317		5,513		(27,340)		(10,510)
Loss from discontinued operations, net of tax		—		(47,217)		(3,041)		(50,258)
Depreciation and amortization		4,894		3,095		70		8,059

Interest income		56		—		10		66
Interest expense		—		301		13,576		13,877
Income tax (benefit) expense		3,574		(12,843)		4,257		(5,012)
Corporate overhead allocation		3,389		778		(4,167)		—

Three Months Ended February 28, 2021
Net sales		$	27,225	$	17,465	$	—	$	44,690
Gross profit		11,561		2,880		—		14,441
Net (loss) income from continuing operations		5,104		(394)		(6,175)		(1,465)
Loss from discontinued operations, net of tax		—		(4,033)		—		(4,033)
Depreciation and amortization		1,385		830		22		2,237

Interest income		—		—		13		13
Interest expense		—		136		2,803		2,939
Income tax (benefit) expense		1,612		(1,614)		(56)		(58)
Corporate overhead allocation		1,102		87		(1,189)		—

Nine Months Ended February 28, 2021
Three Months Ended August 28, 2022										Three Months Ended August 28, 2022
Net sales	Net sales	$	72,248	$	54,381	$	—	$	126,629	Net sales	$	23,703	$	19,652	$	—	$	43,355
Gross profit	Gross profit	27,036		8,854		—		35,890		Gross profit	6,101		151		—		6,252
Net (loss) income from continuing operations	Net (loss) income from continuing operations	9,708		(1,346)		(17,151)		(8,789)		Net (loss) income from continuing operations	502		(2,721)		(9,132)		(11,351)
Loss from discontinued operations, net of tax	Loss from discontinued operations, net of tax	—		(21,010)		—		(21,010)		Loss from discontinued operations, net of tax	—		—		—		—
Depreciation and amortization	Depreciation and amortization	4,055		2,451		76		6,582		Depreciation and amortization	1,771		2,167		11		3,949

Interest income	Interest income	—		—		31		31		Interest income	15		—		—		15
Interest expense	Interest expense	—		410		6,199		6,609		Interest expense	—		—		3,678		3,678
Income tax (benefit) expense	Income tax (benefit) expense	3,066		(2,095)		(1,996)		(1,025)		Income tax (benefit) expense	158		(1,065)		911		4
Corporate overhead allocation	Corporate overhead allocation	3,668		621		(4,289)		—		Corporate overhead allocation	1,038		334		(1,372)		—

Three Months Ended August 29, 2021										Three Months Ended August 29, 2021
Net sales										Net sales	$	21,952	$	19,680	$	—	$	41,632
Gross profit										Gross profit	5,764		4,671		—		10,435
Net (loss) income from continuing operations										Net (loss) income from continuing operations	580		(284)		(7,929)		(7,633)
Loss from discontinued operations, net of tax										Loss from discontinued operations, net of tax	—		(1,844)		—		(1,844)
Depreciation and amortization										Depreciation and amortization	1,547		881		26		2,454

Interest income										Interest income	20		—		7		27
Interest expense										Interest expense	—		137		6,541		6,678
Income tax (benefit) expense										Income tax (benefit) expense	183		(218)		(1,616)		(1,651)
Corporate overhead allocation										Corporate overhead allocation	1,137		1,471		(2,608)		—

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During the ~~nine~~three months ended ~~February 27,~~August 28, 2022 and ~~February 28,~~August 29, 2021, the Company had sales concentrations of 10% or greater from two customers. The Company’s top two customers ~~from the Lifecore segment,~~ accounted for ~~17%~~16% and ~~13%~~10% of revenues for the ~~nine~~three months ended ~~February 27,~~August 28, 2022, and ~~20%~~15% and ~~12%, respectively,~~11% for the ~~nine~~three months ended ~~February 28,~~August 29, 2021. The ~~Company’s same two customers~~Company had accounts receivable concentrations of 10% or greater from three customers accounting for ~~25%~~21%, 16%, and ~~19%~~13% of accounts receivable as of ~~February 27,~~August 28, 2022, and ~~19% and 12%~~two customers as of ~~February 28, 2021.~~August 29, 2021 accounting for 12% and 10%.

8. Restructuring Costs

The following table summarizes the restructuring costs recognized in the Company’s Consolidated Statements of Comprehensive (Loss) Income, by Business Segment, excluding discontinued operations:

(in thousands) Curation Foods Lifecore Other Total
Three Months Ended February 27, 2022
Asset write-off costs $ 3,693 $ — $ — $ 3,693
Employee severance and benefit costs — — — —
Lease costs 1,583 — — 1,583
Other restructuring costs 68 271 250 589
Total restructuring costs $ 5,344 $ 271 $ 250 $ 5,865
(in thousands) Curation Foods Lifecore Other Total
Nine Months Ended February 27, 2022
Asset write-off costs $ 3,693 $ — $ — $ 3,693
Employee severance and benefit costs — — — —
Lease costs 2,049 — — 2,049
Other restructuring costs 68 271 2,325 2,664
Total restructuring costs $ 5,810 $ 271 $ 2,325 $ 8,406

~~Asset write-off costs~~

Asset write-off costs are costs related to impairment or disposal of property and equipment as part of the Company's restructuring plan to drive enhanced profitability, focus the business on its strategic assets and redesign the organization to be the appropriate size to compete and thrive. These costs are included in restructuring costs within the Consolidated Statements of Statements of Comprehensive (Loss) Income.

The Company leases its main office located in Santa Maria, California (the “Santa Maria Office”). During the fiscal quarter ended February 27, 2022 the Company approved a plan to explore opportunities to sub lease its Santa Maria Office. The Santa Maria Office assets, included as lease hold improvements within property and equipment, net, has been designated as held for use within the Consolidated Balance Sheets as of February 27, 2022, as no finalized plan for disposition existed at the balance sheet date. The Company recognized a $5.3 million impairment loss, which is included in Restructuring costs within the ~~Consolidated Statements of Statements of Comprehensive (Loss) Income~~ ($3.7 million included in asset write-off costs related to lease hold improvements impairment and $1.6 million included in lease costs related to right-of-use asset impairment). The Company expects to complete the sublease plan within the next 12 months.


(in thousands)	Curation Foods		Other		Total
Three Months Ended August 28, 2022

Employee severance and benefit costs	$	208	$	—	$	208
Lease costs	20		—		20
Other restructuring costs	194		625		819
Total restructuring costs	$	422	$	625	$	1,047

Employee severance and benefit costs

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Employee severance and benefit costs are costs incurred as a result of reduction-in-force driven by our restructuring plan and closure of offices and facilities. These costs were driven primarily by ~~the closure of~~reduction-in-force related to our ~~San Rafael, California office, Santa Clara, California office, and Los Angeles, California office.~~

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Curation Foods segment.

Lease Costs

In August 2020, the Company closed its leased Santa Clara, California office and entered into a sublease agreement. In the fourth quarter of fiscal year 2020 the Company closed its leased Los Angeles, California office and plans to sublease the office. ~~As noted in the Asset write-off costs section, the~~The Company approved a plan to explore opportunities to sub lease its Santa Maria ~~Office~~office and expects to complete the sublease plan within the next 12 months.

Other restructuring costs

Other restructuring costs are primarily related to consulting costs incurred in connection with the execution of the Company’s restructuring plan to drive enhanced profitability, focus the business on its strategic assets, and redesign the organization to be the appropriate size to compete and thrive.

The following table summarizes the restructuring costs recognized in the Company’s Consolidated Statements of (Loss) Income, by Business Segment, since inception of the restructuring plan in fiscal year 2020 through the ~~nine~~three months ended ~~February 27,~~August 28, 2022, excluding discontinued operations:


		Curation Foods		Lifecore		Other		Total			Curation Foods		Other		Total
(in thousands)	(in thousands)									(in thousands)
Asset write-off costs, net	Asset write-off costs, net	$	7,552	$	—	$	418	$	7,970	Asset write-off costs, net	$	7,552	$	418	$	7,970
Employee severance and benefit costs	Employee severance and benefit costs	188		—		784		972		Employee severance and benefit costs	767		784		1,551
Lease costs	Lease costs	2,195		—		26		2,221		Lease costs	2,238		26		2,264
Other restructuring costs	Other restructuring costs	102		271		4,687		5,060		Other restructuring costs	517		5,523		6,040
Total restructuring costs	Total restructuring costs	$	10,037	$	271	$	5,915	$	16,223	Total restructuring costs	$	11,074	$	6,751	$	17,825

The total expected cost related to the restructuring plan is approximately ~~$20.0~~$23.0 million.

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9. Discontinued Operations

As discussed in Note 1 – Organization, Basis of Presentation, and Summary of Significant Accounting Policies – Eat Smart Sale and Discontinued Operations, on December 13, 2021, we completed the Eat Smart Disposition. Eat Smart represented a component of the business within the Curation Foods segment and its sale represents a strategic shift in the Company going forward. Accordingly, concurrent with the execution of the Asset Purchase Agreement, Eat Smart meets the accounting requirements for reporting as discontinued operations for all periods presented.

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The key components of income from discontinued operations for the three ~~and nine~~ months ended ~~February 27,~~August 28, 2022 and ~~February 28,~~August 29, 2021 were as follows (in thousands):

Three Months Ended Nine Months Ended
February 27, 2022 February 28, 2021 February 27, 2022 February 28, 2021
Product sales $ 13,559 $ 93,092 $ 186,755 $ 277,699
Cost of product sales 13,720 87,844 181,555 256,918
Gross profit (161) 5,248 5,200 20,781
Operating costs and expenses:
Research and development 103 719 1,918 2,120
Selling, general and administrative 1,058 7,086 13,350 21,258
Impairment of goodwill — — 32,057 —
Loss on sale of Eat Smart 4,354 — 4,354 —
Restructuring costs 86 677 1,519 9,940
Total operating costs and expenses 5,601 8,482 53,198 33,318
Operating loss (5,762) (3,234) (47,998) (12,537)
Dividend income — 281 — 844
Interest expense (204) (1,239) (2,682) (3,717)
Other income (expense), net — — — (11,800)
Loss from discontinued operations before taxes (5,966) (4,192) (50,680) (27,210)
Income tax benefit 222 159 422 6,200
Loss from discontinued operations, net of tax $ (5,744) $ (4,033) $ (50,258) $ (21,010)


	Three Months Ended
	August 29, 2021
Product sales	$	87,156
Cost of product sales	80,072
Gross profit	7,084
Operating costs and expenses:
Research and development	953
Selling, general and administrative	6,469


Restructuring costs	728
Total operating costs and expenses	8,150
Operating loss	(1,066)
Dividend income	—
Interest expense	(1,239)

Loss from discontinued operations before taxes	(2,305)
Income tax benefit	461
Loss from discontinued operations, net of tax	$	(1,844)

Cash used in operating activities by the Eat Smart business totaled ~~$5.5~~$0.0 million and ~~$1.8~~$0.2 million for the ~~nine~~three months ended ~~February 27,~~August 28, 2022 and ~~February 28,~~August 29, 2021, respectively. Cash provided by investing activities from the Eat Smart business totaled ~~$117.8~~$0.0 million and ~~$9.3~~$45.1 million for the ~~nine~~three months ended ~~February 27,~~August 28, 2022 and ~~February 28,~~August 29, 2021, respectively. Depreciation and amortization expense of the Eat Smart business totaled ~~$0.3~~$0.0 million and ~~$2.2~~$2.3 million for the three months ended ~~February 27,~~August 28, 2022 and ~~February 28, 2021, respectively. Depreciation and amortization expense of the Eat Smart business totaled $5.1 million and $6.9 million for the nine months ended February 27, 2022 and February 28,~~August 29, 2021, respectively. Capital expenditures of the Eat Smart business totaled ~~$1.9~~$0.0 million and ~~$3.6~~$1.1 million for the ~~nine~~three months ended ~~February 27,~~August 28, 2022 and ~~February 28,~~August 29, 2021, respectively.

Interest expense was allocated to discontinued operations based on the interest expense related to the amount of debt required to be paid down under the New Credit Agreements as a result of the Eat Smart Disposition.

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There were no assets or liabilities of Eat Smart as of ~~February 27,~~August 28, 2022 or May 29, 2022. ~~The carrying amounts of the major classes of assets and liabilities of the Eat Smart business included in assets and liabilities of discontinued operations are as follows (in thousands):~~


	~~May 30, 2021~~

~~ASSETS~~

~~Cash and cash equivalents~~	$	~~136~~
~~Accounts receivable, less allowance for credit losses~~	~~28,583~~
~~Inventories~~	~~6,587~~
~~Prepaid expenses and other current assets~~	~~2,312~~
~~Total current assets, discontinued operations~~	~~37,618~~

~~Investment in non-public company, fair value~~	~~45,100~~
~~Property and equipment, net~~	~~66,789~~
~~Operating lease right-of-use assets~~	~~13,347~~
~~Goodwill~~	~~35,470~~
~~Trademarks/tradenames, net~~	~~8,228~~
~~Customer relationships, net~~	~~2,260~~
~~Other assets~~	80
~~Total other assets, discontinued operations~~	~~171,274~~
~~Total assets, discontinued operations~~	$	~~208,892~~

~~LIABILITIES~~

~~Accounts payable~~	$	~~31,271~~
~~Accrued compensation~~	~~4,550~~
~~Other accrued liabilities~~	~~4,041~~
~~Current portion of lease liabilities~~	~~2,424~~
~~Deferred revenue~~	~~493~~

~~Total current liabilities, discontinued operations~~	~~42,779~~

~~Long-term lease liabilities~~	~~14,030~~

~~Other non-current liabilities~~	~~729~~
~~Non-current liabilities, discontinued operations~~	~~14,759~~
~~Total liabilities, discontinued operations~~	$	~~57,538~~

10. Subsequent Events

~~COVID-19 Pandemic~~

Securities Purchase Agreement

On November 25, 2022, the Company simultaneously signed and closed a Securities Purchase Agreement (the “Agreement”) with entities affiliated with an existing shareholder for the sale and issuance of 627,746 shares of its Common Stock (par value $0.001 per share) at a price per share equal to $7.97, for an aggregate purchase price of $5.0 million. Pursuant to the Agreement, the Company granted the purchasers certain piggyback registration rights and agreed, among other things, to indemnify such parties under any registration statement filed that includes the shares from certain losses, claims, damages and liabilities.The proceeds will be used for capital expenditures associated with equipment manufacturing milestones based on demand from the Company’s development pipeline.

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Limited waiver and Fourth Amendment to Term Loan and Revolver Credit Agreements

On January 9, 2023, the Company entered into a Limited Waiver and Fourth Amendment to its existing term loan agreement with Goldman Sachs Specialty Lending Group, L.P. and Guggenheim Credit Services, LLC (“Amended Term Loan”) and its revolver credit agreement with BMO Harris Bank, N.A. (“Amended Revolver Credit Agreement” together with the Amended Term Loan, the “Credit Agreements”). Among other things, the limited waiver provided relief from events of default under the Credit Agreements related to certain financial covenant requirements as of November 27, 2022. There ~~are many uncertainties regarding~~were no changes to the ~~current novel coronavirus (“COVID-19”) pandemic,~~respective lending parties to the Credit Agreements.

The Credit Agreements also provided for certain updates to the existing terms and covenants, including waiving the ~~scope of scientific~~Fixed Charge Coverage and ~~health issues,~~Leverage Ratios for the ~~anticipated duration~~quarters ending November 27, 2022 and February 26, 2023 and were revised for all subsequent quarters; and the Minimum Consolidated Liquidity was reduced from $7.5 million to $1.0 million for the period from the effective date of the ~~pandemic, and~~Amended Term Loan until May 28, 2023, then increasing to $7.5 million for subsequent periods. The Credit Agreements do not provide for any waiver of current or forecasted covenant violations as of the ~~extent~~date of ~~local and worldwide social, political, and economic disruption it may cause. The COVID-19 pandemic, as well as actions taken in response~~issuance of the consolidated financial statements.

Amended Term Loan

Pursuant to the ~~pandemic, have had and we believe~~Amended Term Loan, the term loan facility will ~~continue to have significant adverse impacts on many aspects~~remain at $170.0 million (comprised of the Initial Term Loan and Multi-Draw Term Loan, collectively, the “Term Loan”). The Amended Term Loan provides for principal payments by the Company of 5% per annum, payable quarterly in arrears in equal installments, commencing on February 28, 2025 (formerly March 30, 2023) with the remainder due at its original maturity date of December 25, 2025. Interest on the amounts outstanding under the Term Loan will include payment-in-kind interest (“PIK interest”) at the annual rate of 2%. The PIK interest expense charges will be added to the outstanding principal of the Term Loan. There were no changes to the spreads used in the determination of interest. Interest on the Term Loan is at a per annum rate based on either (i) the base rate plus a spread of 7.50% for the Initial Term Lean; or (ii) the SOFR rate plus a spread of 8.50% % for the Multi-Draw Loan. The Company paid a one-time amendment fee to the Term Loan lenders in an amount equal to 3% of the principal amount as of January 9, 2023.

Amended Revolver Credit Agreement

Pursuant to the Amended Revolver Credit, the revolving line of credit commitment was reduced from $75.0 million to $60.0 million. This commitment was further reduced to $50.0 million upon the sale of Yucatan. The Amended Revolver Credit maintained the original maturity date of December 25, 2025. There were no changes to the spreads used in the determination of the interest rate. Interest on Revolver is based upon the Company’s ~~operations, directly~~average availability, at a per annum rate of either (i) secured overnight finance rate or SOFR rate (formerly used LIBOR) plus a spread of between 2.00% and ~~indirectly, including~~2.50% or (ii) base rate plus a spread of between 1.00% and 1.50%, plus a commitment fee, as applicable, of 0.375%; and plus (iii) for the period from December 1, 2022 until January 31, 2023, additional 2% per annum.

Series A Preferred Share Purchase Agreement

On January 9, 2023, the Company simultaneously signed and closed a Securities Purchase Agreement (the “Purchase Agreement”) with a group of qualified investors. Pursuant to the Purchase Agreement, the Company issued and sold an aggregate of 38,750 shares of a new series of convertible preferred stock of the Company designated as Series A Preferred Shares, par value $0.001 per share (the “Preferred Shares") for an aggregate of $38.75 million. The Preferred Shares rank senior to the Company’s Common Stock with respect to ~~sales, customer behaviors,~~dividends, distributions and payments on liquidation, winding up and dissolution. Each holder of Preferred Shares has the right, at its option, to convert its Preferred Share, in whole or in part, into fully paid and non-assessable shares of our Common Stock at an initial conversion price equal to $7.00 per share. The conversion price is subject to customary anti-dilution adjustments, including in the event of any stock split, stock dividend, recapitalization or similar events, and is also subject to adjustment in the event of subsequent offerings of Common Stock or convertible securities by the Company for less than the conversion price. Immediately following the Closing, two Series A Preferred Share Directors were appointed to the Company’s Board of Directors.

Sale of Curation Foods’ Avocado Business

On February 7, 2023, the Company simultaneously signed and closed a Securities Purchase Agreement for the sale of all its outstanding equity interests in its Curation Foods’ avocado products business (the "SPA") for an aggregate purchase price of $17.5 million in cash, subject to customary net working capital adjustments (the “Sale”). The SPA included a working capital adjustment period, various representations, warranties, and covenants of the parties generally customary for a transaction of this nature. The Company has entered into a Transition Services Agreement with the buyer to provide for a customary and orderly transition of the business, and ~~manufacturing~~ such fees earned, and costs incurred for such transition services shall be included in continuing

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operations ~~inventory, the Company’s employees, and the market generally, and the scope and nature of these impacts continue to evolve each day.~~in subsequent periods. The Company expects to ~~continue~~recognize a loss on the Sale in the third quarter ended February 26, 2023 of approximately $15 million to ~~assess the evolving impact of the COVID-19 pandemic, and intends to continue to make adjustments to its responses accordingly.~~

$17 million.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the unaudited consolidated financial statements and accompanying notes included in Part I, Item 1, of this Form ~~10-Q~~10-Q/A and the audited consolidated financial statements and accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Landec’s Annual Report on Form ~~10-K~~10-K/A for the fiscal year ended May ~~30, 2021.~~29, 2022.

This Quarterly Report on Form ~~10-Q,~~10-Q/A, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements regarding future events and our future results that are subject to the safe harbor created under the Private Securities Litigation Reform Act of 1995 and other safe harbors under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Words such as “anticipate”, “estimate”, “expect”, “project”, “plan”, “intend”, “believe”, “may”, “might”, “will”, “should”, “can have”, “likely” and similar expressions are used to identify forward-looking statements. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected. Potential risks and uncertainties include, without limitation, the timing and expenses associated with operations, the ability to achieve acceptance of our new products in the market place, weather conditions that can affect the supply and price of produce, government regulations affecting our business, uncertainties related to COVID-19 and the impact of our responses to it, the timing of regulatory approvals, the impact of adverse and uncertain economic conditions in the U.S. and international markets, the mix between domestic and international sales, our ability to continue as a going concern, and those other risks mentioned in this report and in our Annual Report on Form ~~10-K~~10-K/A for the fiscal year ended May ~~30, 2021.~~29, 2022.

We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. Accordingly, our actual results could differ materially from those projected in the forward-looking statements for many reasons, including the risk factors listed in Item 1A. “Risk Factors” and in our Annual Report on Form ~~10-K~~10-K/A for the fiscal year ended May ~~30, 2021.~~29, 2022.

All forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary statements as well as others made in this report, our Annual Report on Form ~~10-K~~10-K/A for the fiscal year ended May ~~30, 2021,~~29, 2022, and hereafter in our other SEC filings and public communications.

You should evaluate all forward-looking statements made by us in the context of all risks and uncertainties described with respect to our business. We caution you that the risks and uncertainties identified by us may not be all of the factors that are important to you. Furthermore, the forward-looking statements included in this report are made only as of the date ~~hereof.~~of the Original 10-Q. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

Restatement of Previously Issued Financial Statements

This “Management's Discussion and Analysis of Financial Condition and Results of Operations” has been amended and restated to give effect to the Restatement, as more fully described in Note 1 - Correction of Error in Previously Reported Interim Financial Statements (Unaudited) to our accompanying consolidated financial statements contained elsewhere in this Quarterly Report on Form 10-Q/A. For further detail regarding the Restatement, see “Explanatory Note” and Part I, Item 4, “Controls and Procedures” contained in this Quarterly Report on Form 10-Q/A.

Critical Accounting Policies and Use of Estimates

There have been no material changes to the Company's critical accounting policies and use of estimates from those disclosed in the Company’s Form ~~10-K~~10-K/A for the fiscal year ended May ~~30, 2021.~~29, 2022. For a discussion of our critical accounting policies and use of estimates, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Use of Estimates in Part II, Item 7 of the Company’s Annual Report on Form ~~10-K~~10-K/A for the fiscal year ended May ~~30, 2021.~~29, 2022.

The Company

Corporate Overview

Landec Corporation and its subsidiaries (“Landec,” the “Company”, "we" or "us") design, develop, manufacture, and sell differentiated products for food and biomaterials markets, and license technology applications to partners.

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Landec’s biomedical company, Lifecore Biomedical, Inc. (“Lifecore”), is a fully integrated CDMO that offers highly differentiated capabilities in the development, fill and finish of sterile, injectable pharmaceutical products in syringes and vials. As a leading manufacturer of premium, injectable grade Hyaluronic Acid, Lifecore brings 3637 years of expertise as a partner for global and emerging biopharmaceutical and biotechnology companies across multiple therapeutic categories to bring their innovations to market.

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Landec’s natural food company, Curation Foods, Inc. (“Curation Foods”) is focused on innovating and distributing plant-based foods with 100% clean ingredients to retail, club and foodservice channels throughout North America.

Landec was incorporated in California on October 31, 1986 and reincorporated as a Delaware corporation on November 6, 2008. Landec’s common stock is listed on The NASDAQ Global Select Market under the symbol “LNDC”. The Company’s principal executive offices are located at 2811 Airpark Drive Santa Maria, California 93455, and the telephone number is (650) 306-1650.

Going Concern

The Company’s ability to meet its liquidity needs for one year following the Amended Filing Date will largely depend on its ability to generate cash in the future. As of November 27, 2022, the Company incurred net losses of $12.5 million, and the Company’s ability to generate cash in the future is subject to general economic, financial, competitive, legislative, regulatory, and other factors that are beyond the Company’s control. Based on the Company’s financial projections as of the Amended Filing Date, the Company does not believe that it will have adequate liquidity to meet its obligations for at least one year following the Amended Filing Date.

The Company further considered how these factors and uncertainties have and could impact its ability to meet the obligations specified in the New Credit Agreements with the Lenders (each as defined in “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations ─ Liquidity and Capital Resources – Debt”) for at least one year following the Amended Filing Date. As of the Amended Filing Date, the Company determined that it was not in compliance with the covenant under the New Credit Agreements requiring the timely filing of financial statements. In addition, the inclusion of a going concern explanatory paragraph in the auditor’s report issued by Ernst and Young LLP in connection with the restated audited financial statements for the year ended May 29, 2022 included in the Company’s Annual Report on Form 10-K/A also violates the covenants under the New Credit Agreements.

In addition, based on the Company’s current financial projections for the one-year period following the Amended Filing Date, the Company anticipates that it will not be in compliance with certain financial covenants under the New Credit Agreements during the one-year period following the Amended Filing Date, including the minimum fixed charge coverage ratio covenant for the fiscal quarters ending May 30, 2023 through November 30, 2023; the maximum leverage ratio covenant as of the fiscal quarters ending May 30, 2023 through November 30, 2023; the minimum liquidity covenant for each of the fiscal quarters ended as of February 26, 2023 through May 30, 2024; and the minimum Lifecore gross profit covenant for the fiscal quarters ending February 26, 2023 through August 30, 2023. Pursuant to the terms of the New Credit Agreements, as a result of the Company’s failure to comply with the covenants described above, the agents and the lenders under the New Credit Agreements are entitled to immediately cancel all unfunded commitments and to accelerate the maturity of all of the outstanding debt thereunder, at which time all such outstanding borrowings would become immediately due and payable by the Company. In addition, as a result of such defaults, under the New Credit Agreements, the Company will be subject to increased interest rates for any outstanding borrowings thereunder prior to repayment and, even if the agent and the lenders under the Refinance Revolver (as defined in “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations ─ Liquidity and Capital Resources – Debt”) do not exercise their rights to immediately accelerate all outstanding obligations, such lenders may refuse to fund additional borrowings thereunder, which the Company relies upon for short-term liquidity needs.

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under the New Credit Agreements nor does management have projected future cash flows to repay these outstanding borrowings under the New Credit Agreements if such amounts were to become payable. The Company’s inability to raise additional capital on acceptable terms in the near future, whether for purposes of funding payments required under the New Credit Agreements or providing additional liquidity needed for its operations, could have a material adverse effect on its business, results of operations, liquidity and financial condition.

Accordingly, the Company determined that it cannot be certain that the Company’s plans and initiatives would be effectively implemented within one year after the Amended Filing date. Without giving effect to the Company’s plans and initiatives, it is unlikely that the Company will be able to generate sufficient cash flows to meet its required financial obligations, including its debt service and other obligations due to third parties within one year after the Amended Filing Date. The existence of these conditions and events raise substantial doubt about the Company’s ability to continue as a going concern for the twelve-month period following the Amended Filing Date.

As a result, all outstanding borrowings under the New Credit Agreements are classified as short term on the Consolidated Balance Sheets as of August 28, 2022 and May 29, 2022.

Reportable Segments

Landec has three reportable business segments – Lifecore, Curation Foods, and Other, which are described below.

Lifecore Biomedical

Lifecore, located in Chaska, Minnesota, is a fully integrated CDMO that offers highly differentiated capabilities in the development, fill and finish of sterile, injectable pharmaceutical products in syringes and vials. It is involved in the manufacture of pharmaceutical-grade sodium hyaluronate (“HA”) in bulk form as well as formulated and filled syringes and vials for injectable products used in treating a broad spectrum of medical conditions and procedures. Lifecore uses its fermentation process and aseptic formulation and filling expertise to be a leader in the development of HA-based products for multiple applications and to take advantage of non-HA device and drug opportunities which leverage its expertise in manufacturing and aseptic syringe filling capabilities.

Lifecore CDMO provides product development services to its partners for HA-based, as well as non-HA based, aseptically formulated and filled products. These services include activities such as technology development, material component changes, analytical method development, formulation development, pilot studies, stability studies, process validation and production of materials for clinical studies.

Built over many years of experience, Lifecore separates itself from its competition based on its five areas of expertise, including but not limited to Lifecore’s ability to:

Establish strategic relationships with market leaders:

Lifecore continues to develop applications for products with partners who have strong marketing, sales, and distribution capabilities to end-user markets. Through its strong reputation and history of providing pharmaceutical grade HA and products, Lifecore has established long-term relationships with global and emerging biopharmaceutical and biotechnology companies across multiple therapeutic categories, and leverages those partnerships to attract new relationships in other medical markets.

Expand medical applications for HA:

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Due to the growing knowledge of the unique characteristics of HA and Lifecore’s unique strength and history as a trusted manufacturer of pharmaceutical injectable grade HA products, Lifecore continues to identify and pursue opportunities for the use of HA in other medical applications, such as wound care, aesthetic surgery, drug delivery, next generation orthopedics and device coatings, and through sales to academic and corporate research customers. Further applications may involve expanding process development activity and/or additional licensing of technology.

Utilize manufacturing infrastructure to meet customer demand:

Lifecore has made strategic capital investments in its CDMO business focusing on extending its aseptic filling capacity and capabilities to meet increasing partner demand and to attract new contract filling opportunities outside of HA markets. Lifecore is using its manufacturing capabilities to provide contract manufacturing and development services to its partners in the area of sterile pre-filled syringes and vials, as well as fermentation and purification requirements.

Maintain flexibility in product development and supply relationships:

Lifecore’s vertically integrated development and manufacturing capabilities allow it to establish a variety of contractual relationships with global corporate partners. Lifecore’s role in these relationships extends from supplying HA raw materials to providing technology transfer and development services to manufacturing aseptically filled, finished sterile products, and assuming full supply chain responsibilities.

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Deliver consistent quality:

Lifecore has built a world class quality and regulatory system that is demonstrated in ~~their~~its results, processes and customer relationships. With over 3537 years of a superior track record with global regulatory bodies (FDA, EMA, ANVISA, etc.), Lifecore is the partner of choice for companies looking for proven experience in delivering QbD, cGMP compliance, and manufacturing excellence with pharmaceutical elegance and quality. Lifecore’s world class quality and regulatory system and excellent track record with the global regulatory bodies ensure partners that they will safely bring innovative therapies to market.

Curation Foods

Curation Foods Overview

Based in Santa Maria, California, Curation Foods’ primary business is the processing, marketing and selling of guacamole, avocado products, and olive oils and wine vinegars. Curation Foods serves as the corporate umbrella for its patented BreatheWay® packaging technology and for its portfolio of three natural food brands, O Olive Oil & Vinegar® products, and Yucatan® and Cabo Fresh® authentic guacamole and avocado products. We believe that the major distinguishing characteristics of Curation Foods that provide competitive advantage are insight driven product innovation, diversified fresh food supply chain, refrigerated supply chain and customer reach. We believe that Curation Foods is well positioned as a single source of a broad range of its products.

On December 13, 2021 (the “Closing Date”), Landec and Curation Foods (together, the “Sellers”), and Taylor Farms Retail, Inc. (“Taylor Farms” and together with the Sellers, the “Parties”) completed the sale (the “Eat Smart Disposition”) of Curation Foods’ Eat Smart business, including its salad and cut vegetable businesses (the “Business”), pursuant to the terms of an asset purchase agreement executed by the Parties on December 13, 2021 (the “Asset Purchase Agreement”). Pursuant to the Asset Purchase Agreement, Taylor Farms acquired the Business for a purchase price of $73.5 million in cash, subject to post-closing adjustments based upon net working capital at the Closing Date. As part of the Eat Smart Disposition, Taylor Farms acquired, among other assets related to the Business, the manufacturing facility and warehouses (and corresponding equipment) located in Bowling Green, Ohio and Guadalupe, California, as well as inventory, accounts receivable and accounts payable, intellectual property and information related to the Business, and assumed certain liabilities and executory obligations under the Company’s and Curation Foods’ outstanding contracts related to the Business, in each case, subject to the terms of the Asset Purchase Agreement.

On June 2, 2022, the Company sold its BreatheWay technology business for $3.2 million in cash.

Following the Eat Smart Disposition, as well as the BreatheWay and Yucatan sales subsequent to fiscal year end, Curation Foods retains its O Olive ~~and Yucatan businesses and its rights and interests in BreatheWay,~~business, and the Company retains its Lifecore business.

As a result of the Eat Smart Disposition, the Company met the requirements of ASC 205-20, to report the results of the Eat Smart business as a discontinued operation. Accordingly, the operating results for the Eat Smart business have therefore been reclassified as a discontinued operation within these consolidated financial statements.

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Curation Foods Brands

O Olive Oil & Vinegar: The Company acquired O on March 1, 2017. O, founded in 1995, is based in Petaluma, California, and is the premier producer of California specialty olive oils and wine vinegars. Its products are sold in natural food, conventional grocery and mass retail stores, primarily in the United States and Canada.

Yucatan & Cabo Fresh Avocado Products: The Company acquired Yucatan Foods on December 1, 2018. Yucatan Foods was founded in 1991. As part of the acquisition of Yucatan Foods, Curation Foods acquired the newly built production facility in Guanajuato, Mexico. The Yucatan Foods business added a double-digit growth platform, a lower-cost infrastructure in Mexico, and higher margin product offerings that generally exhibit less sourcing volatility. The Company manufactures and sells Yucatan and Cabo Fresh guacamole and avocado food products primarily to the U.S. grocery channel, but also to the U.S. mass retail, Canadian grocery retail and foodservice channels. Subsequent to August 28, 2022, on February 7, 2023, the Company sold its Yucatan Foods business for $17.5 million in cash and expects to recognize a loss in the third quarter ended February 26, 2023 of approximately $15 million to $17 million.

~~BreatheWay Packaging Technology:~~
The Company’s BreatheWay membrane technology establishes a beneficial packaging atmosphere adapting to changing fresh product respiration and temperature in order to extend freshness naturally. The BreatheWay supply chain packaging technology extends shelf-life and reduces shrink (waste) for retailers and helps to ensure that consumers receive fresh products.

The Company ~~generates revenue from~~intends to continue exploring potential sale opportunities for its remaining Curation Foods assets. Subject to market conditions, the ~~sale of its BreatheWay patented packaging technology and integrated packaging solutions.~~

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Company anticipates completing these sales during fiscal year 2023.

Other

Included in the Other segment is Corporate, which includes corporate general and administrative expenses, non-Lifecore and non-Curation Food interest income, interest expense, and income tax expenses.

COVID-19 Pandemic

There are many uncertainties regarding the current novel coronavirus (“COVID-19”) pandemic, including the scope of scientific and health issues, the anticipated duration of the pandemic, and the extent of local and worldwide social, political, and economic disruption it may cause. The COVID-19 pandemic, as well as actions taken in response to the pandemic, have had and we believe will continue to have significant adverse impacts on many aspects of the Company’s operations, directly and indirectly, including with respect to sales, customer behaviors, business and manufacturing operations, inventory, the Company’s employees, and the market generally, and the scope and nature of these impacts continue to evolve each day. The Company expects to continue to assess the evolving impact of the COVID-19 pandemic, and intends to continue to make adjustments to its responses accordingly.

Results of Operations

Revenues:

Lifecore generates revenues from the development and manufacture of pharmaceutical-grade sodium hyaluronate (“HA”) products and providing contract development and aseptic manufacturing services to customers. Lifecore generates revenues from two integrated activities: (1) CDMO and (2) fermentation.

Curation Foods revenues for the periods presented consist of revenues generated from ~~the sale~~sales of (1) Yucatan, Cabo Fresh, and private label branded guacamole and avocado products, (2) O olive oils and wine vinegars, and (3) ~~our proprietary~~ BreatheWay packaging to license partners. As a result of the Eat Smart Disposition, the Company met the requirements of ASC 205-20, to report the results of the Eat Smart business as a discontinued operation. Accordingly, the operating results for the Eat Smart business have therefore been reclassified as a discontinued operations for the periods presented.


(In thousands)	(In thousands)	Three Months Ended				Change				Nine Months Ended				Change				(In thousands)	Three Months Ended		Change
		February 27, 2022		February 28, 2021		Amount		%		February 27, 2022		February 28, 2021		Amount		%					August 28, 2022		August 29, 2021		Amount		%
Lifecore	Lifecore	$	34,808	$	27,225	7,583		28	%	$	81,707	$	72,248	9,459		13	%			Lifecore	$	23,703	$	21,952	1,751		8	%
Curation Foods	Curation Foods	18,266		17,465		801		5	%	56,451		54,381		2,070		4	%			Curation Foods	19,652		19,680		(28)		—	%
Total Revenues	Total Revenues	$	53,074	$	44,690	$	8,384	19	%	$	138,158	$	126,629	$	11,529	9	%			Total Revenues	$	43,355	$	41,632	$	1,723	4	%

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Lifecore

The increase in Lifecore’s revenues for the three months ended ~~February 27,~~August 28, 2022, compared to the same period last year, was due to a $6.2 million increase in CDMO revenues from an increase in aseptic commercial shipments, resulting from increased demand from existing customers and an increase in development services activities resulting in higher sales to new and existing customers, as well as a $1.4$1.3 million increase in fermentation sales primarily due to the timing of shipments within the fiscal ~~year.~~

~~The increase in Lifecore’s revenues for the nine months ended February 27, 2022, compared to the same period last~~ year ~~was due to~~and increased demand from existing customers, as well as a ~~$10.6~~$0.5 million increase in CDMO revenues primarily from an increase in development services activities resulting in higher sales to new and existing customers and an increase in aseptic commercial shipments, resulting from increased demand from existing customers, partially offset by a $1.1 million decrease in fermentation sales primarily due to timing of shipments.

customers.

Curation Foods

The ~~increase~~slight decrease in Curation Foods’ revenues for the three ~~and nine~~ months ended ~~February 27,~~August 28, 2022, compared to the same period last year, was primarily driven by ~~increased volume~~the sale of our ~~guacamole and avocado products and olive oil and wine vinegars.~~

~~-29-~~

~~Table~~BreatheWay packaging technology business on June 2, 2022 which as a result of ~~Contents~~

the sale did not earn any revenue during the three months ended August 28, 2022 compared to $0.4 million during the three months ended August 29, 2021.

Gross Profit:

There are numerous factors that can influence gross profit including product mix, customer mix, manufacturing costs, volume, sales discounts and charges for excess or obsolete inventory, to name a few. Many of these factors influence or are interrelated with other factors. The Company includes in cost of sales all of the following costs: raw materials (including ~~raw product,~~ packaging, syringes, ~~and~~ fermentation and purification supplies), direct labor, overhead (including indirect labor, depreciation, and facility-related costs), and shipping and shipping-related costs.


(In thousands)	(In thousands)	Three Months Ended				Change				Nine Months Ended				Change				(In thousands)	Three Months Ended			Change
																				As restated
		February 27, 2022		February 28, 2021		Amount		%		February 27, 2022		February 28, 2021		Amount		%						August 28, 2022		August 29, 2021		Amount		%
Lifecore	Lifecore	$	12,905	$	11,561	$	1,344	12	%	$	30,384	$	27,036	$	3,348	12	%				Lifecore	$	6,101	$	5,764	$	337	6	%
Curation Foods	Curation Foods	990		2,880		(1,890)		(66)	%	8,661		8,854		(193)		(2)	%				Curation Foods	151		4,671		(4,520)		(97)	%
Total Gross Profit	Total Gross Profit	$	13,895	$	14,441	$	(546)	(4)	%	$	39,045	$	35,890	$	3,155	9	%				Total Gross Profit	$	6,252	$	10,435	$	(4,183)	(40)	%

Lifecore

The increase in gross profit for the Lifecore business for the three ~~and nine~~ months ended ~~February 27,~~August 28, 2022, compared to the same period last year, was due primarily to increased revenue.

Curation Foods

~~The~~As restated, the decrease in gross profit for the Curation Foods business for the three ~~and nine~~ months ended ~~February 27,~~August 28, 2022, compared to the same period last year, was primarily driven by increased freight costs combined with increased raw product sourcing costs.

Operating Expenses:

Research and Development

R&D expenses consist primarily of product development and commercialization initiatives. R&D expenses in our Lifecore business are focused on new products and applications for HA-based and non-HA biomaterials. In ~~our~~the Curation Foods business R&D expenses are primarily focused on innovating our current product ~~lines and on the Company’s proprietary BreatheWay membranes used for packaging produce, with a focus on extending the shelf-life~~lines.


(In thousands)	Three Months Ended				Change
	August 28, 2022		August 29, 2021		Amount		%
Lifecore	$	2,046	$	1,668	$	378	23	%
Curation Foods	2		205		(203)		(99)	%
Total R&D	$	2,048	$	1,873	$	175	9	%

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Table of ~~sensitive vegetables and fruit.~~

Contents

(In thousands) Three Months Ended Change Nine Months Ended Change
February 27, 2022 February 28, 2021 Amount % February 27, 2022 February 28, 2021 Amount %
Lifecore $ 1,978 $ 1,510 $ 468 31 % $ 5,309 $ 4,520 $ 789 17 %
Curation Foods 78 333 (255) (77) % 476 1,003 (527) (53) %
Total R&D $ 2,056 $ 1,843 $ 213 12 % $ 5,785 $ 5,523 $ 262 5 %

The increase in R&D expenses for the three ~~and nine~~ months ended ~~February 27,~~August 28, 2022, compared to the same ~~periods~~period last year, was primarily due to higher salary and benefits expenses, including increased headcount, in our Lifecore Segment.

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Selling, General, and Administrative (“SG&A”)

SG&A expenses consist primarily of sales and marketing expenses associated with Landec’s product sales and services, business development expenses, and staff and administrative expenses.


(In thousands)	(In thousands)	Three Months Ended				Change				Nine Months Ended				Change				(In thousands)	Three Months Ended			Change
																				As restated
		February 27, 2022		February 28, 2021		Amount		%		February 27, 2022		February 28, 2021		Amount		%						August 28, 2022		August 29, 2021		Amount		%
Lifecore	Lifecore	$	2,848	$	2,233	$	615	28	%	$	6,581	$	6,075	$	506	8	%				Lifecore	$	2,372	$	2,216	$	156	7	%
Curation Foods	Curation Foods	2,970		2,423		547		23	%	8,628		8,353		275		3	%				Curation Foods	3,222		2,892		330		11	%
Other	Other	3,907		3,478		429		12	%	11,998		13,540		(1,542)		(11)	%				Other	5,067		4,362		705		16	%
Total SG&A	Total SG&A	$	9,725	$	8,134	$	1,591	20	%	$	27,207	$	27,968	$	(761)	(3)	%				Total SG&A	$	10,661	$	9,470	$	1,191	13	%

The increase in total SG&A expenses for the three months ended ~~February 27, 2022, compared to the same period last year, was primarily due to higher salary and benefits expenses, including increased headcount, in our Lifecore segment.~~

~~The decrease in total SG&A expenses for the nine months ended February 27,~~August 28, 2022, compared to the same period last year, was due primarily to ~~a decrease~~an increase at our Other segment primarily due to ~~a decrease~~an increase in legal fees from compliance and other litigation matters, ~~partially offset by higher~~combined with increased salary and benefits expenses ~~including increased headcount, as well as higher recruiting fees~~ in ~~the Lifecore~~our Curation Foods segment.

Restructuring Costs


(In thousands)	Three Months Ended				Change
	August 28, 2022		August 29, 2021		Amount		%
Lifecore	$	—	$	—	$	—	—	%
Curation Foods	422		468		(46)		(10)	%
Other	625		1,366		(741)		(54)	%
Total SG&A	$	1,047	$	1,834	$	(787)	(43)	%

During fiscal year 2020, the Company announced a restructuring plan to drive enhanced profitability, focus the business on its strategic assets and redesign the organization to be the appropriate size to compete and thrive. This includes a reduction-in-force, a reduction in leased office spaces and the sale of non-strategic assets. ~~For~~The Company recorded $1.0 million and $1.8 million during the three months ended ~~February 27,~~August 28, 2022 and ~~February 28,~~August 29, 2021, ~~the Company recorded restructuring costs of $5.9 million and $2.0 million,~~ respectively, related to the restructuring plan. ~~For~~Restructuring costs for the ~~nine~~three months ended ~~February 27,~~August 28, 2022 decreased $0.8 million compared to the prior year period due to decreased restructuring activity in our Other Segment as part of our Project SWIFT initiatives to sell Curation Foods assets and ~~February 28, 2021~~prepare the Company ~~recorded restructuring costs of $8.4 million and $2.8 million, respectively, related~~for the transition to ~~the restructuring plan.~~Lifecore. Refer to Note 8 - Restructuring Costs in the notes to our consolidated financial statements for more information.

Other:


(In thousands)	(In thousands)	Three Months Ended				Change				Nine Months Ended				Change				(In thousands)	Three Months Ended						Change
		February 27, 2022		February 28, 2021		Amount		%		February 27, 2022		February 28, 2021		Amount		%									As restated
																					August 28, 2022			August 29, 2021			Amount			%

Interest Income	Interest Income	$	20	$	13	$	7	54	%	$	66	$	31	$	35	113	%						Interest Income		$	15		$	27		$	(12)	(44)	%
Interest Expense	Interest Expense	$	(4,105)	$	(2,939)	$	(1,166)	40	%	$	(13,877)	$	(6,609)	$	(7,268)	110	%						Interest Expense		$	(3,678)		$	(6,678)		$	3,000	(45)	%
Loss on debt refinancing		$	—	$	(1,110)	$	1,110	(100)	%	$	—	$	(1,110)	$	1,110	(100)	%
Other income (expense), net		$	454	$	72	$	382	N/M		$	642	$	64	$	578	N/M
Income Tax Benefit		$	276	$	58	$	218	N/M		$	5,012	$	1,025	$	3,987	N/M

Other Income (Expense), net																				Other Income (Expense), net	$	(180)		$	109		$	(289)		N/M
Income Tax (Expense) Benefit																				Income Tax (Expense) Benefit	$	(4)		$	1,651		$	(1,655)		(64)		%

Interest Income

The ~~increase~~decrease in interest income for the three ~~and nine~~ months ended ~~February 27,~~August 28, 2022, compared to the same ~~periods~~period last year, was not significant.

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Interest Expense

The ~~increase~~decrease in interest expense for the three ~~and nine~~ months ended ~~February 27,~~August 28, 2022, compared to the same ~~periods~~period last year, was primarily a result of prepaid interest and prepayment penalties incurred related to payments made on our term debt resulting from the sales of our investment in Windset ~~and~~during the ~~Eat Smart Disposition, combined with higher interest rates and an increase in deferred financing costs incurred as a result of our debt refinancing in December 2020.~~three months ended August 29, 2021.

Other Income (Expense)

The ~~increase~~decrease in other income (expense) for the three ~~and six~~ months ended ~~February 27,~~August 28, 2022, compared to the same ~~periods~~period last year, was primarily the result of the change in the fair value of our interest rate swap liability that is no longer an effective hedge as a result of our debt refinancing in December 2020.

Income Taxes

~~The~~As restated, the change in income tax (expense) benefit for the ~~nine~~three months ended ~~February 27,~~August 28, 2022 compared to the same period last year was primarily due to the Company’s ~~effective tax rate increasing~~increase in net loss before income taxes from ~~10% to 32%. The~~continuing operations and the Company’s effective tax rate for the ~~nine~~three months ended ~~February 27,~~August 28, 2022 ~~was higher than~~changed from a tax provision benefit of 18% to 0% in comparison to the ~~statutory federal income~~same period last year, after adjustment for discontinued operations. The decrease in the effective tax rate ~~of 21%~~for the three months ended August 28, 2022 was primarily due to ~~the movement of the~~an increase in valuation allowance recorded against certain deferred tax assets, partially offset by the impact of federal and state ~~taxes. The effective~~research and development tax rate for the nine months ended February 28, 2021, was higher than the statutory federal income tax rate of 21% primarily due income tax benefit on the increased forecasted losses, the generation of federal & state R&D credits and impact of states taxes, partially offset by the movement of the valuation allowance recorded against certain deferred tax assets.credits.

Liquidity and Capital Resources

As of ~~February 27,~~August 28, 2022, the Company had cash and cash equivalents of ~~$1.9~~$4.2 million, a net ~~decrease~~increase of ~~$0.6~~$2.6 million from ~~$1.3~~$1.6 million as of May ~~30, 2021.~~29, 2022.

Cash Flow from Operating Activities

Net cash used in operating activities during the ~~nine~~three months ended ~~February 27,~~August 28, 2022 was ~~$24.4~~$1.5 million, compared to ~~$10.6~~$0.8 million of net cash provided by operating activities for the same period last year. The primary uses of net cash in operating activities during the ~~nine~~three months ended ~~February 27,~~August 28, 2022 were (1) a ~~$60.8~~$11.4 million net loss, as restated, and (2) ~~a $15.7~~$2.1 million ~~net increase in working capital, and (3) a $5.5 million reduction in deferred taxes.~~gain on sale of BreatheWay assets. These uses of cash were partially offset by (1) ~~$32.1~~a $6.8 million ~~goodwill impairment,~~net decrease in working capital and (2) ~~$16.4~~$5.1 million of depreciation/amortization and stock based compensation ~~expense, and (3) $9.5 million Loss on sale of Eat Smart and impairment of assets.~~expense.

The primary factors for the ~~increase~~decrease in working capital during the ~~nine~~three months ended ~~February 27,~~August 28, 2022, was ~~an $11.9~~a $2.6 million ~~increase~~decrease in inventory driven by ~~production in our Avocado Products division,~~sales of product, a ~~$7.5~~$7.2 million ~~increase~~decrease in accounts receivable driven by ~~sales increases and~~ timing of customer payments, partially offset by a ~~$4.2~~$2.9 million ~~increase in other accrued liabilities due to timing of payments, and a $3.8 million increase~~decrease in accrued compensation driven by severance ~~accruals, partially offset by a $13.1 million increase in accounts payable due primarily to the increase in inventory and timing of~~ payments.

Cash Flow from Investing Activities

Net cash provided by investing activities during the ~~nine~~three months ended ~~February 27,~~August 28, 2022 was ~~$101.2~~$0.2 million, compared to ~~$1.5~~$38.3 million for the same period last year. Net cash provided by investing activities during the ~~nine~~three months ended ~~February 27,~~August 28, 2022 was primarily due to the receipt ~~$73.5 million related to the Eat Smart Disposition (partially offset by a $6.6 million working capital adjustment), $45.1~~of $3.1 million related to the sale of ~~the Company's investment in Windset,~~our BreatheWay assets, partially offset by the purchase of ~~$18.5~~$2.9 million of equipment to support the growth of the Company’s Lifecore ~~and Curation Foods businesses.~~business.

Cash Flow from Financing Activities

Net cash ~~used in~~provided by financing activities during the ~~nine~~three months ended ~~February 27,~~August 28, 2022 was ~~$76.2~~$3.9 million compared to ~~$10.4~~$38.9 million of net cash used in financing activities for the same period last year. The net cash ~~used in~~provided by financing activities during the ~~nine~~three months ended ~~February 27,~~August 28, 2022 was primarily due to ~~$86.4 million of debt pay downs under the Company's term loan, partially offset by~~ a ~~$10.9~~$4.0 million net increase in the Company’s line of credit.

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~~Table of Contents~~

Capital Expenditures

During the ~~nine~~three months ended ~~February 27,~~August 28, 2022, Landec incurred ~~$18.5~~$2.9 million of capital expenditures, which was primarily represented by facility expansions and purchased equipment to support the growth of the Lifecore ~~and Curation Foods businesses,~~business, compared to capital expenditures of ~~$11.4~~$7.9 million for the ~~nine~~three months ended ~~February 28,~~August 29, 2021. During the ~~nine~~three months ended ~~February 27,~~August 28, 2022, capital expenditures for Lifecore and Curation Foods were ~~$14.0~~$2.8 million and ~~$4.5~~$0.1 million, respectively.

Debt

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On December 31, 2020, the Company refinanced its existing ~~Term Loan~~term loan and ~~Revolver~~revolving credit facility by entering into two separate Credit Agreements (the "New Credit Agreements") with BMO and Goldman Sachs Specialty Lending Group, L.P. (“Goldman”) and Guggenheim Credit Services, LLC ("Guggenheim"), as lenders (collectively, the “Refinance Lenders”). Pursuant to the credit agreement related to the revolving credit facility, BMO has provided the Company, Curation Foods and Lifecore, as co-borrowers, with an up to $75.0 million revolving line of credit (the “Refinance Revolver”) and serves as administrative agent of the Refinance Revolver. Pursuant to the credit agreement related to the term loan, Goldman and Guggenheim have provided the Company, Curation Foods and Lifecore, as co-borrowers, with an up to $170.0 million term loan facility (split equally between Goldman and Guggenheim) (the “Refinance Term Loan”) and Goldman serves as administrative agent of the Refinance Term Loan. The Refinance Revolver and Refinance Term Loan are guaranteed, and secured by, substantially all of the Company’s and the Company's direct and indirect subsidiaries' assets.

In connection with the New Credit Agreements, the Company incurred debt issuance costs from the lender and third-parties of ~~$10.5~~$10.3 million.

~~-33-~~

~~Table~~ However, as of ~~Contents~~

the Amended Filing Date, the Company was not in compliance with the covenants under the New Credit Agreements and therefore all outstanding amounts under these agreements, as amended, have been reclassified as current.

Off-Balance Sheet Arrangements and Contractual Obligations

The Company is not a party to any agreements with, or commitments to, any special purpose entities that would constitute material off-balance sheet financing. There have been no material changes to our long-term contractual obligations as reported in our most recent Annual Report filed on Form ~~10-K~~10-K/A for the fiscal year ended May ~~30, 2021.~~29, 2022. See Note 6 – Debt for further information on the Company’s loans.

Going Concern

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Refer to “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Going Concern” above for discussion on our ability to continue as a going concern, as of the date of this report.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to the information provided under Item 7A. ~~"Quantitative~~“Quantitative and Qualitative Disclosures About Market ~~Risk"~~Risk” which is included and described in the Form ~~10-K~~10-K/A for the fiscal year ended May ~~30, 2021~~29, 2022 filed with the SEC on ~~July 29, 2021.~~March 15, 2023.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As ~~of February 27, 2022, our management~~required by Rule 13a-15(b) under the Exchange Act, we have evaluated, under the supervision and with the participation of our ~~Chief Executive Officer~~management, including our principal executive officer and ~~our Chief Financial Officer,~~principal financial officer, the effectiveness of the design and operation of our disclosure controls and ~~procedures. Based~~procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on ~~this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that the~~Form 10-Q/A. Our disclosure controls and procedures are ~~effective in ensuring~~designed to provide reasonable assurance that information required to be disclosed by us in reports ~~filed~~that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified byin the ~~SEC,~~rules and ~~are~~forms of the SEC. Based upon the evaluation, our principal executive officer and principal financial officer concluded that due to material weaknesses in our internal control over financial reporting that were disclosed in our Annual Report on Form 10-K/A for the fiscal year ended May 29, 2022, our disclosure controls and procedures were not effective ~~in providing reasonable assurance that information required to be disclosed by the Company in such reports is accumulated and communicated to~~as of August 28, 2022.

As further described below, the Company’s management is in the process of developing plans to remediate the material weaknesses identified, but they have not been remediated as of the date of filing of this Quarterly Report on Form 10-Q/A. Despite the existence of these material weaknesses, our management believes that the consolidated financial statements included in this Quarterly Report on Form 10-Q/A fairly present, in all material respects, the Company’s financial condition, results of operations and cash flows for the periods presented in conformity with U.S. generally accepted accounting principles.

Previously Disclosed Material Weaknesses in Internal Control over Financial Reporting

As previously disclosed in Item 9A of our Annual Report on Form 10-K/A for the year ended May 29, 2022, management identified material weaknesses as of such date. The first identified material weakness was that we did not design and operate effective internal controls over the assessment of recoverability and measurement of fair value of certain indefinite-lived and long-lived assets. This resulted in a material error for the fiscal year ended May 29, 2022, that was corrected in the Annual Report on Form 10-K/A for the year ended May 29, 2022, and for the first quarter ended August 28, 2022, that is being corrected in this Quarterly Report on Form 10-Q/A for the quarter ended August 28, 2022, with the impacted financial information corrected in Note 1 - Correction of Error in Previously Reported Interim Financial Statements (Unaudited) to our consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q/A. The second identified material weakness was that we did not design and operate effective internal controls over the completeness and accuracy of the accounting for non-standard transactions, that would include discontinued operations and restructuring activity. Specifically, we did not design controls for non-standard transactions to ensure the accurate presentation of non-standard transactions, which would include discontinued operations and certain restructuring costs in our financial statements. These two material weaknesses remain unremediated.

In response to the material weaknesses described above, with the oversight of the Audit Committee of our Board of Directors, management has corrected the errors in its annual and interim financial statements. Management is currently evaluating remediation activities related to our processes for assessing recoverability and measurement of fair value of certain indefinite-lived and long-lived assets that will include, but are not limited to the following (i) developing a more comprehensive review over the periodic assessment of recoverability of indefinite-lived and long-lived assets; and (ii) enhancing and developing a more comprehensive review process and monitoring controls related to the measurement of fair values of indefinite-lived and long-lived assets. In addition, Management is currently evaluating remediation activities related to our non-standard transaction processes that will include, but are not limited to the following (i) enhancing and developing a more comprehensive review process and monitoring controls related to non-standard transactions; and (ii) continuing to provide training and development to our accounting team related to non-standard transactions, including ~~its Chief Executive Officer~~discontinued operations and ~~Chief Financial Officer,~~restructuring activity.

The remediation efforts, which are ongoing are intended to both address the identified material weaknesses and to enhance our overall financial control environment and will be subject to ongoing senior management review, as ~~appropriate~~well as Audit

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Committee oversight. We plan to ~~allow timely decisions regarding required disclosure.~~complete this remediation process as quickly as possible. Management is committed to continuous improvement of our internal control over financial reporting and will continue to diligently review our internal control over financial reporting.

Changes in Internal Control over Financial Reporting

~~There were~~Other than the identification of the material weaknesses as described in “Previously Disclosed Material Weaknesses in Internal Control over Financial Reporting”, there have been no changes in our system of internal control over financial reporting ~~identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred~~ during the ~~Nine months~~quarter ended ~~February 27,~~August 28, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

In the ordinary course of business, the Company is involved in various legal proceedings and claims. For further discussion, see the disclosures contained in Note 1 - Organization, Basis of Presentation, and Summary of Significant Accounting Policies - Legal Contingencies, which are incorporated herein by reference.

Item 1A. Risk Factors

You should carefully consider the risks described in Item 1A, Risk Factors, of our Annual Report on Form ~~10-K~~10-K/A for the fiscal year ended May ~~30, 2021,~~29, 2022, as supplemented by our Quarterly Report on Form ~~10-Q~~10-Q/A for the fiscal period ended ~~February 27,~~August 28, 2022, as our business, financial condition and results of operations could be adversely affected by any of the risks and uncertainties described therein and herein. There have been no material changes to our risk factors as previously disclosed in our Annual Report on Form ~~10-K~~10-K/A for the fiscal year ended May ~~30, 2021,~~29, 2022, as supplemented by our Quarterly Report on Form ~~10-Q~~10-Q/A for the fiscal period ended ~~February 27,~~August 28, 2022.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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Table of Contents

Item 6. Exhibits


Exhibit Number			Exhibit Title
2.1*			~~Asset Purchase Agreement, dated December 13, 2021, by and among Landec Corporation, Curation Foods, Inc. and Taylor Farms Retail, Inc.~~
3.1			Certificate of Incorporation of the Registrant, incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on November 7, 2008.
3.2			Amended and Restated By-Laws of the Registrant, incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on October 16, 2012.
3.3			Amendment No. 1 to By-Laws of the Registrant, incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on May 7, 2019.
3.4			Amendment No. 2 to By-Laws of the Registrant, incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on May 24, 2019.
3.5			Amendment No. 3 to By-Laws of the Registrant, incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on October 19, 2020.
10.1			Transition and Separation Agreement, ~~and General Release, dated October 13, 2021,~~effective August 10, 2022, by and between the Company and ~~Timothy Burgess, incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on October 15, 2021.~~Dr. Albert Bolles, Ph.D.
~~31.1+~~31.1+			Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
~~31.2+~~31.2+			Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.132.1*			Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.232.2*			Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS+			XBRL Instance
101.SCH+			XBRL Taxonomy Extension Schema
101.CAL+			XBRL Taxonomy Extension Calculation
101.DEF+			XBRL Taxonomy Extension Definition
101.LAB+			XBRL Taxonomy Extension Labels
101.PRE+			XBRL Taxonomy Extension Presentation
*			The schedules and other attachments to this exhibit have been omitted. The Company agrees to furnish a copy of any omitted schedules or attachments to the SEC upon request.
**			Information is furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing.
+			Filed herewith.

~~-36-~~-39-

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			~~LANDEC CORPORATION~~LIFECORE BIOMEDICAL, INC.

			By:			/s/ John D. Morberg
						John D. Morberg
						Chief Financial Officer
						(Principal Financial and Accounting Officer)

Date: ~~April 7, 2022~~March 16, 2023

~~-37-~~-40-


(In thousands)	Fair Value at February 27, 2022						Fair Value at May 30, 2021
Assets:	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3

Current assets, discontinued operations
Assets held for sale - nonrecurring	$	—	$	—	$	—	$	—	$	—	$	515
Other assets, discontinued operations
Investment in non-public company	—		—		—		—		—		45,100
Total assets	$	—	$	—	$	—	$	—	$	—	$	45,615
Liabilities:
Interest rate swap contracts	$	—	$	348	$	—	$	—	$	1,736	$	—

Total liabilities	$	—	$	348	$	—	$	—	$	1,736	$	—